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Slow start for vehicle leasing

DAVID SMITH
A poor market acceptance of vehicle leasing stems from vehicle dealership showrooms, where instalment sales through banks are punted

DAVID SMITH A poor market acceptance of vehicle leasing stems from vehicle dealership showrooms, where instalment sales through banks are punted

25th July 2014

By: Donna Slater

Features Deputy Editor and Chief Photographer

  

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Vehicle leasing in South Africa, compared with Europe and the US, has had a sluggish start, with most uptake coming from mature consumers, according to Edenvale-based vehicle leasing company Ariva.

The slow start could either be because of vehicle buyers’ lack of knowledge about how vehicle leasing works or their not being aware of its benefit. Buying a vehicle through an instalment finance option granted by a bank comprises about 90% of new-vehicle sales, says Ariva MD David Smith.

The company was launched in South Africa in January 2012 and reached the milestone of leasing 1 000 vehicles in April this year. There was a soft launch two months prior to the official launch to tackle any issues before the company made its leasing product official. Smith notes that a few changes were made to the product after the soft launch to enhance its value and ensure that vehicle users would be happy with the product.

“Market acceptance of vehicle leasing has not been as good as was expected, and certainly not as good as vehicle leasing on an international scale,” says Smith, adding that, in the European market, especially, there has been a significant acceptance of vehicle leasing.

The problem of poor market acceptance stems from vehicle dealership showrooms, where instalment sales through banks are punted, with little to no attention paid to other vehicle financing options, such as leasing, he states. “Even though numerous banks offer vehicle leasing products, these are seldom promoted or mentioned and, sometimes, they are even demoted, with instalment sales being prioritised.”

Smith adds that this has resulted in those interested in acquiring a vehicle having only one financing option in mind when walking into a dealership.

Choosing an instalment option places all the risks and rewards of ownership of the vehicle on the buyer as soon as the offer to purchase is signed; however, the buyer actually does not own the vehicle until the bank receives the last payment. Thereafter, a balloon payment might even be required, which may result in refinancing or even reselling the vehicle, states Smith.

“With instalment sales, the ‘owner’ of the vehicle is fully responsible for certain inevitable aspects, such as vehicle depreciation; service, maintenance, tyre replacement and insurance costs; wear and tear; and excess payments for insurance claims,” he adds.

Mimicking People’s Behaviour
Recent statistics from vehicle finance provider WesBank show that people who choose instalment financing opt for repayment periods of between five to six years, many with a balloon payment at the end, Smith notes.

“However, the same statistics also indicate that the majority of these people trade their cars in after 36 months,” he says, adding that these early trade-ins could be the result of numerous influences, such as the vehicle service or the maintenance plan coming to an end or the owner simply wanting to acquire another vehicle.

He states that the most likely cause for selling the vehicle after 36 months could be that this is the typical period during which the vehicle loan reflects a positive equity, as “this is the ideal time to trade in a vehicle for the latest model, as the vehicle will be worth more than the financier owes the bank during this time.”

He explains that Ariva’s product simply mimics the majority of people’s behaviour in terms of acquiring products through a rental solution: “People rent houses, digital satellite decoders and even televisions, so why not a car?”

Leasing Options
Ariva offers vehicle leasing options in the form of two products, a Lite package and a Premium package.

The Lite package includes features such as an inclusive service plan, insurance, roadside assistance, a towing service and vehicle tracking.

The Premium package is an extension of the Lite package, with a free tyre replacement and full maintenance of the vehicle.

Ariva will offer a leasing option at the end of this month that includes the choice of owning the vehicle at the end of the leasing period, taking into account a few terms and conditions, as one of the biggest nega- tive connotations with vehicle leasing is that the lessee cannot own the vehicle when the contract expires. “We are working towards a product that is a more tailored product, as opposed to a one-size-fits-all offering,” Smith says, adding that the ownership option provides a great incentive for leasers to look after the car.

Further, Ariva can approve leases for people who did not receive approval from banks for instalment sales. “There are certain risk-mitigating properties of our leasing structure which enable us to take more risks than banks.”

This is where flexibility comes into play, as clients of Ariva’s leasing deals fall under the Consumer Protection Act (CPA), instead of the National Credit Act (NCA).

“Under the CPA, we offer a fixed-term contract, similar to a cellphone contract, which includes provisions for handing back the car or cancelling the contract, should a lessee not make the payments,” he says.

“Under the NCA, those who are unable to make the monthly repayments would have their vehicle repossessed by the bank and put up for auction,” says Smith, adding that the person responsible for the repayments would also have to pay in any difference in price, should the vehicle not be auctioned for the full amount that the person owes the bank.

Moreover, Ariva’s leasing deals are pay-per-use products and, should a vehicle leased from Ariva be in for repairs, maintenance or service procedures for longer than 21 days, Ariva will rebate the rent for that period.

“We provide vehicle leasing products for people who want peace of mind and hassle-free motoring,” he concludes.

Edited by Megan van Wyngaardt
Creamer Media Contributing Editor Online

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