“A brand new car for 99 euros per month, maintenance included!” To finance their car purchases, more and more customers are opting for leasing formulas, whether it is leasing with option to purchase (LOA) or long-term leasing (LLD).
If this type of financing has been known for a long time by companies, which now use it up to 82% for their fleets, it is more recent for individuals, who have long preferred to resort to conventional loans. According to figures from C-Ways, leasing represented 47.2% of financing by individuals for their purchases of new cars in 2021. A figure that has literally exploded in recent years: from 11% in 2012, it climbed to 21% in 2015, then to 35% in 2018 and 42% in 2020.
“It is a market that emerged in 2012-2013, mainly under pressure from rental companies”, explains Eric Champarnaud, founding partner of C-Ways law firm. “It builds on a general trend in the economy whereby customers agree to no longer own their cars and prefer subscription packages in exchange for services, including maintenance or insurance. As proof, very few exercise their option to purchase at maturity, preferring to leave with a new lease – and a new new car. And this, even if this formula is undoubtedly a little more expensive than a traditional loan ”, continues the specialist.
According to the ASF (Association of Financial Companies), the LOA represented 80% of the loans contracted for the purchase of new passenger cars in 2020 (8.5 billion euros in total). And it is also starting to hit the second-hand market, with 17% of financing for second-hand passenger cars last year (4.5 billion in total).
Builders and their distributors have seen many advantages in pushing for leasing. “It allows them to retain their customers, who often take back a car of the same brand at the end of the leasing period”, notes Eric Champarnaud. It also allows dealers to continue to maintain it – a business that is often more lucrative than the sale itself.
Access high-end cars
And the formula has largely won over customers, anxious to control car-related expenses. With the “all-inclusive” formulas, including maintenance and insurance, the car no longer causes (bad) surprises. Above all, leasing also allows them to access more upscale or better equipped cars, for a given rent.
Because the economy of these long-term rental formulas is based on the residual value of the vehicles, that is to say the value at which it will be possible to resell them at maturity (a risk borne by the lessor): the rent is calculated on the differential between the sale price and the residual value. “However, the value of ‘premium’ cars, or those fitted with highly demanded equipment, falls less quickly over the years,” says Flavien Neuvy, director of the Cetelem Observatory. This makes it possible to limit rents.
Leasing also makes it possible to smooth costs over time and hide sales price increases, which become less visible when they are converted into monthly rents. A significant asset, as the price of new cars continues to increase.