Innovation in Automotive Leasing

Auto-leasing is a billion-euro industry in Europe, but slowing auto sales and changing mobility patterns have taken a toll throughout 2020. COVID-19 will likely continue to depress revenues through 2021, but the impact will vary by segment.

Despite the current challenges, many new players are entering the auto-leasing market, including FinTechs, independent leasing companies with digital channels, and automotive OEMs with captive-financing arms that are partnering with, or even building their own FinTechs.

One of the industry’s fastest-growing segments, driving higher growth rates in the leasing market, is the emerging subscription business: industry players that want to stimulate long-term growth are increasingly exploring this model because consumer interest is so high.

Indeed, in Europe alone, the auto-leasing market is expected to grow at a +4% CAGR from 2020-2025 to reach approximately $32bn-$34bn by 2025-end, compared with the auto-loans market, which is expected to grow at a +1% CAGR to reach $17bn-$18bn during the same timeline.

Main trends around innovation in auto leasing

Plug and Play Tech Center has identified four, strongly intertwined, tech models and strategic mandates that will shape innovation in the auto leasing market.

1. Mobility-as-a-service subscription models for digital and direct B2C channels
2. Modular and packaged offerings for better product combination
3. B2C marketplaces for used cars auto-leasing
4. Long-term: sustainable mobility and EV partnerships

Mobility-as-a-service subscription models for digital and direct B2C channels

Digital and direct B2C channels are rapidly becoming more popular. The industry is already experiencing high online and mobile traffic volumes, and the COVID-19 pandemic has accelerated growth in these channels. By 2025, 25% of B2C sales for auto-financing are expected to go through online channels. Such shift is readily observable from the growing traction of FinTech startups such as Vehiculum and LeaseOnline. In the banking space, Capital One’s Auto Navigator is a flagship example: enabling customers to prequalify and personalize their auto financing in minutes with their proprietary technology, and purchase a car at one of more than 12,000 participating dealers.

With more companies targeting their customers via online and mobile platforms, demand is rising for subscription offerings, which industry insiders expect will represent about 20% of the total market by 2025. High demand exists for fully flexible products, such as leasing models with non-binding durations, but only a few such offerings are available. In Europe, for instance, FinTech startups dominate the market, where offerings such as Cluno, branded as the “Netflix of car subscription” were recently acquired by UK car platform Cazoo. Within the subscription model, consumer demand is directed towards greater flexibility such as allowing vehicle swaps at the end of each period, or even during a running contract. A flagship example of greater customer flexibility is Drover.

Modular and packaged offerings for better product combination

As a complement to the digital subscription model, more companies are building integrated platforms that offer extras, such as remarketing, insurance, maintenance, or concierge services. As such, the venture-space is seeing an increase in modular and packaged offerings such as startups like ViveLaCar, that allow for at home-delivery of cars, and Volvo’s long-standing subscription product Care by Volvo, providing end-to-end solutions including maintenance and insurance. However, as customer preferences shift from owning to using, consumers value the freedom to choose the exact product combination, and select or drop modules over time. In the medium run, products such as rented and shared mobility, could become part of an integrated multi-modal bundle—for instance, a contract that offers a leased car and an option for a ride-sharing service—to allow for a seamless mobility experience, regardless of location.

B2C marketplaces for used cars auto-leasing

Leasing companies have recently been placing more emphasis on the used-car market. They could accelerate business even further by devoting more attention to the B2C segment, which is generating more customer interest in Europe. Worldwide, several FinTechs, Carvana and Vroom in the United States and HeyCar, the VW subsidiary, are already targeting the B2C used-car segment. Some players, including JuhuAuto (BDK), Spoticar (Groupe PSA), and VivaCar (CGI) are focusing on controlling the customer front end by building their own online B2C marketplaces. Santander Bank recently launched its first independent marketplace AutoBoerse.de in Germany, as a means to tap into this opportunity space. These marketplaces could even become remarketing channels, further contributing to vehicle disposal efficiency. In another shift, companies are investing in adapting their residual-value models for used-auto leasing to increase financial stability.

Sustainable mobility and EV partnerships

Electric and hybrid cars currently have a relative weight in the automotive market, given the increasingly stringent CO2 emissions regulations and ever more discerning consumers in environmental issues. Given the growing popularity of EVs, auto-financing companies are developing advanced residual value models to manage battery risk. Leasing products and services can give customers a hedge against the prevailing uncertainty about battery lifetimes and quality. There will also be a greater need for packaged offerings that allow customers to lease EV-charging infrastructure, and some companies are already moving in this direction. For instance, LeasePlan partnered with FinTech to provide EV charging infrastructure in their offering. Societe Generale’s ALD Automotive has signed an international framework agreement with ChargePoint, the world’s leading electric vehicle (EV) charging network, to facilitate and accelerate the transition to e-mobility for international corporate clients, SMEs, and individuals.

Conclusion

In the light of recent developments, including the repercussions of COVID-19, auto leasing players need to reposition themselves for success by capitalizing on current trends, and the time to act is now.

Plug and Play Tech Center leverages its cross-industry network across FinTech, mobility, sustainability, and partners with key industry disruptors such as Drover for direct B2C digital offering, CarWallet, for leasing used cars, and a series of other leading startups in various relevant opportunity spaces. Our experience shows that auto leasing companies can often reorient their product landscapes to focus on such products within 24 to 48 months.

By involving you in a plethora of events spanning across Mobility-as-a-service, Digital Finance, and, connecting you with promising tech startups purposefully sourced for the auto leasing market, we can help quickly identify the most promising technologies and can help you further explore the space.