Lease companies - how do they work

[strain]

So talking with a friend, about the viability of a lease company, how does it work?

Assuming most lease companies have investors buying the cars and leasing direct to customers, with the admin fee's making the business income, or do they somehow manage to resell the lease to the end user, IE approach the dealer with the car order, dealer then takes over paying the lease company commission?

I know a fair few people trading PCP cars in at the moment with the gains they have made through the lack of supply of cars, assuming some lease companies are also making increased profits due to this?

[StevieBee]

Most lease companies don't actually own the cars. They act more like brokers. On the occasion I've used them, the ultimate agreement isn't with the lease company but with a main dealer. The brokers market the offers and take a commission and arrangement fee. I believe some of the bigger ones will bulk-buy leases and sell them on. I've tried several times to get a better deal going direct to a dealer but have never been able to better the price via a Lease Company.

Manufacturers also push out end of run models via Lease companies to shift stock ahead of an incoming newer model.

When a car goes back, it's the dealer that takes them and sells them on via auction or forecourts.

I'm sure there's some variation to this but that's the gist as far as I understand it.

strain said:

I know a fair few people trading PCP cars in at the moment with the gains they have made through the lack of supply of cars, assuming some lease companies are also making increased profits due to this?

Not unless they legally own the vehicle which as stated, is unlikely. Whoever has legal title to the vehicle (dealer network, manufacturer, etc) may well be benefiting but they are also carrying huge risk as well. ..... Unless you mean people who are buying and selling end of PCP vehicles. In which case, yes.

[essayer]

do you mean brokers or finance companies like RCI, VWFS, PSA? The latter are basically large banks, supplying the car manufacturers with money (to build cars) receiving rentals payments from users and smaller finance companies

[Dr Jekyll]

When I worked for a large leasing company some years ago they explained it to me as the profit coming from the element of interest in what the customer was charged being a calculated amount higher than what the leasing firm was paying for their finance.

[zedstar]

Lease company buys the car off a dealer, rents it to you and then sells at the end normally via BCA/Manheim i'd imagine. Simple enough but probably over complicated by a number of incentives the manufacturer can offer the lease company (normally an offshoot of themselves) which means the lease company can pass some or all of those savings to the customers.

So when you lease a car off the dealer directly they are simply arranging a lease between you and the lease company, they sell the car to the lease company (such as VWFS/LEX/Alphabet) who have committed to lease you the car for xyz months.

I'd imagine this gives the manufacturer an easy way to fill build slots for cars that they want to get out there without excessive discounting and also allowing to have an easy line of 2 year old cars to sell at the dealers, giving themselves 2 bites of the cherry.

Seems that way anyway?

[Deep Thought]

zedstar said:

Lease company buys the car off a dealer, rents it to you and then sells at the end normally via BCA/Manheim i'd imagine. Simple enough but probably over complicated by a number of incentives the manufacturer can offer the lease company (normally an offshoot of themselves) which means the lease company can pass some or all of those savings to the customers.

So when you lease a car off the dealer directly they are simply arranging a lease between you and the lease company, they sell the car to the lease company (such as VWFS/LEX/Alphabet) who have committed to lease you the car for xyz months.

I'd imagine this gives the manufacturer an easy way to fill build slots for cars that they want to get out there without excessive discounting and also allowing to have an easy line of 2 year old cars to sell at the dealers, giving themselves 2 bites of the cherry.

Seems that way anyway?

The lease companies that actually buy the cars (as opposed to brokers), buy direct from the manufacturer and buy in bulk, thus cutting out the dealers margin entirely (which would be quite significant). They will also - for the very best of the lease deals anyway - be buying up prebuilt cars rather than ordering up say, 100 to be built.

Also, its my understanding that a lot of the time there will be a buy back price agreed with the manufacturer, so the leasing company knows precisely what they will be getting for the car down the line.

The advantage for the manufactuer is - more new cars registered, stock that otherwise has sat a while is sold, and when buying them back they have good, used stock to sell on to their dealer network as "approved used" cars.

A leasing company buying one car at a time from their local dealer has no chance of competing.

[Abdul Abulbul Amir]

Deep Thought said:

zedstar said:

Lease company buys the car off a dealer, rents it to you and then sells at the end normally via BCA/Manheim i'd imagine. Simple enough but probably over complicated by a number of incentives the manufacturer can offer the lease company (normally an offshoot of themselves) which means the lease company can pass some or all of those savings to the customers.

So when you lease a car off the dealer directly they are simply arranging a lease between you and the lease company, they sell the car to the lease company (such as VWFS/LEX/Alphabet) who have committed to lease you the car for xyz months.

I'd imagine this gives the manufacturer an easy way to fill build slots for cars that they want to get out there without excessive discounting and also allowing to have an easy line of 2 year old cars to sell at the dealers, giving themselves 2 bites of the cherry.

Seems that way anyway?

The lease companies that actually buy the cars (as opposed to brokers), buy direct from the manufacturer and buy in bulk, thus cutting out the dealers margin entirely (which would be quite significant). They will also - for the very best of the lease deals anyway - be buying up prebuilt cars rather than ordering up say, 100 to be built.

Also, its my understanding that a lot of the time there will be a buy back price agreed with the manufacturer, so the leasing company knows precisely what they will be getting for the car down the line.

The advantage for the manufactuer is - more new cars registered, stock that otherwise has sat a while is sold, and when buying them back they have good, used stock to sell on to their dealer network as "approved used" cars.

A leasing company buying one car at a time from their local dealer has no chance of competing.

That isn't correct. Lessors buy the vast majority of their cars from dealers, albeit with large discounts.

eta
and manufacturer buy backs are few and far between.

[Amateurish]

I thought the finance company bought the vehicles? The "lease company" is usually just a broker.

[Abdul Abulbul Amir]

Amateurish said:

I thought the finance company bought the vehicles? The "lease company" is usually just a broker.

Depends on terminology, I use the term lease company as the Lessor/Funder, the broker is called the broker.

eta, the OP is talking about being a broker I think, so to answer the question...the Lessee (the final user) will sign the Lessor's documents and will have a direct relationship with them. The broker will then receive a lump commission from the Lessor...like an estate agent.

Edited by Abdul Abulbul Amir on Tuesday 5th October 12:33

[Amateurish]

Abdul Abulbul Amir said:

Amateurish said:

I thought the finance company bought the vehicles? The "lease company" is usually just a broker.

Depends on terminology, I use the term lease company as the Lessor/Funder, the broker is called the broker.

eta, the OP is talking about being a broker I think, so to answer the question...the Lessee (the final user) will sign the Lessor's documents and will have a direct relationship with them. The broker will then receive a lump commission from the Lessor...like an estate agent.

Edited by Abdul Abulbul Amir on Tuesday 5th October 12:33

Plus the fee they charge the customer!

[Auto810graphy]

StevieBee said:

Not unless they legally own the vehicle which as stated, is unlikely. Whoever has legal title to the vehicle (dealer network, manufacturer, etc) may well be benefiting but they are also carrying huge risk as well. ..... Unless you mean people who are buying and selling end of PCP vehicles. In which case, yes.

Sorry but most of what you have written is wrong.

The vehicles are normally owned by a lease company (funder) that is often backed by a bank e.g Santander. A couple of German manufacturers act as funders with their own lease companies e.g VWFS, Alphabet (BMW) and Daimler. There are also smaller leasing companies who borrow money to own their own fleet but with the exception of Zenith (Zen Auto) most of these don’t get involved with headline rate driven business as seen o the leasing thread.

Funders are given discount terms from the manufacturers which can be up to 50% off list price. These discounts allow the funder to offer reduced rates on cars but the rate is ultimately down to the funders estimate of the residual value and charge for credit.

The dealers never own the car but get paid either a set handling or percentage depending on the funder and franchise if the car is not direct supply.

Brokers earn their money by having access to most funders and often deal with dealer groups that are happy to work on less fees, some dealers even contribute into the lease deal just to hit their dealership unit bonus. In terms of brokers, they can earn money by increasing the monthly rate or by charging admin fees etc. Again, the broker never owns the car, they just introduce the client to the funder and do the admin etc.

In regards PCP values, in the unlikely event the customer hands back to the funder at the end of contract without paying the GFV the finance company would keep any sales equity but most dealers would look to value the car and work to settle the finance and return the client some equity if there is any.

[StevieBee]

Auto810graphy said:

StevieBee said:

Not unless they legally own the vehicle which as stated, is unlikely. Whoever has legal title to the vehicle (dealer network, manufacturer, etc) may well be benefiting but they are also carrying huge risk as well. ..... Unless you mean people who are buying and selling end of PCP vehicles. In which case, yes.

Sorry but most of what you have written is wrong.

I bow to your better knowledge.

Over the past 10 years, I've leased three cars; two Mercs and Ford using two leasing companies but on each occasion other than some preliminary paper work, all documentation related to dealers and, as I recall, the monthly payments were made to the dealers; Mercedes South West. Oddly, the Ford (arranged through a different lease company), the documents pertained to a BMW dealer in Milton Keynes.

So I'm assuming in these cases the leasing companies I used were just brokers?

[Futureologist]

Thank goodness Auto810graphy piped up with some accurate knowledge on the OP question.

So much rubbish shared by people that think they know the answer on the topic it’s unbelievable.

[Abdul Abulbul Amir]

Futureologist said:

Thank goodness Auto810graphy piped up with some accurate knowledge on the OP question.

So much rubbish shared by people that think they know the answer on the topic it’s unbelievable.

Such as?