Slow economic growth, more cautious lending by the banks, continued strains on consumer affordability and high inflation rates are some of the reasons why consumers are not buying cars, which is why specialist private leasing company Ariva MD Keith Watson sees a future in the leasing of cars in South Africa.
Private leasing is a widely used car finance product worldwide. In developed markets such as the UK and the US, leasing is one of the fastest- growing forms of vehicle financing.
In South Africa, private leasing is still in the beginning stages but will grow progressively as more consumers become aware of the benefits that leasing offers and recognise it as a viable market alternative.
“The ‘good old days’ of financing a car, settling the balance before the end of the contract term and making a profit on the vehicle have disappeared, yet consumers are still of the view that they must ‘buy’ their car,” he adds.
However, despite these socioeconomic trends, which are expected to continue in 2015, many South African consumers still need to be able to transport themselves. Watson, therefore, believes that private leasing will gain more widespread acceptance and will begin competing in the mainstream market with traditional financing products, such as paying in instalments.
“The strain on consumer affordability and substantially lower credit approval rates, particularly in the entry and midtier market segment, have led to more sluggish growth in the automotive sector,” says Watson.
He adds that the percentage of consumers selling or trading in their cars after 36 to 40 months, well before the end of their instalment contract term, is still relatively high. Effectively, these consumers are leasing; the difference is that they take on the additional costs associated with the cost of ownership, as well as the vehicle depreciation risks.
Ariva, therefore, wants to differentiate in the local market between buying, owning and leasing a car, along with all the associated costs and risks, by continuing to educate consumers on all the finance products available to them, enabling consumers to make informed decisions.
“We want to reach a point where consumers are informed enough to be able to calculate what their full cost of ownership will be on that car and whether they should be investigating other options in the market that may prove more viable and complement their lifestyle needs and future affordability,” concludes Watson.