TL;DR: Leasing vehicles has been made so simple in the last few years but the infrastructure that sits behind it is large, complicated and affects how you should approach getting the best deals, fairly treated and no nasty surprises
'Do I really need to know this?' I hear you ask. Well, most people don't know this stuff and they do OK but here at wondle, we want you to do better than OK, we want you to ACE IT!
By understanding how the industry hangs together it gives you the best chance of being able to identify the best, authentic leasing bargains, navigate the broker and dealer world, optimise for the 'in life' processes and get fully prepared for the end of the lease which can help avoid the hidden pitfalls such as end of contract damage charges which if charged will run into the hundreds, sometimes thousands of pounds. This is a cost that can be avoided or a least minimised by understanding how it works and when to do what. So here goes, and if you have a specific question on this stuff, feel free to drop us a line at Simon@wondle.io and we will help you if we can.
"Costs can be avoided or minimised by understanding how it works and when to do what"
Let's start at the top of the food chain.
1. The Leasing Company
Leasing companies are the foundation of the leasing industry. They are usually very big organisations or subsidiaries of big organisations. They take all the risk that is associated with a lease contract. The Asset Risk (The vehicle and its future value), the Credit Risk (The likelihood of being repaid by the customer) and the Maintenance Risk (The predicted amount of service, maintenance and repairs the vehicle will require throughout the contract).
The Lease Co's decide on these big factors on a regular basis, quarterly is common but in turbulent times monthly is not unheard of. The factors include future residual values, interest rates and OEM discounts. Maintenance pricing is usually more stable and revisited less often.
They are responsible for lending the money and as such abide by the Financial Conduct Authority (FCA) regulations. This element is heavily monitored and they need to show they have strong oversight and treat customers fairly at all times. This includes Creditworthiness checks, which now involves Affordability checks Which PCH (Personal Contract Hire) consumers often get mixed up. In short, just because you have a great credit history does not automatically mean you will be allowed credit anymore as credit firms are obligated to consider future affordability.
"They pre-negotiate procurement deals with vehicle manufacturers and car dealers. These are usually done annually and do not move much."
Leasing Companies were originally set up to serve other businesses fleet requirements. As such they have large teams of corporate account managers and call centre teams designed to make the running of business fleets go smoothly. They are very good at this and provide a host of other services to these corporate clients such as risk management, driver training, accident management, consultancy, daily rental services etc.
They pre-negotiate procurement deals with vehicle manufacturers and car dealers. These are usually done annually and do not move much. They are (especially with dealers) attached to Minimum Service Level agreements covering topics like pick up and delivery protocols, dispute resolution etc. This is often overlooked when securing a new lease deal, as you will read later in the blog, not all customer service is equal, if you step outside the leasing company's Preferred Dealer Network the amount of support you can expect in solving issues with the vehicle is greatly diminished. Again, this is because they were designed to service corporate fleets where full support services is a bigger priority than saving a few pounds, this is not the case in the deal-hungry personal customer.
"So in short, if you get in a dispute with a leasing company it's probably going to be a slow and tough journey, it's just not what they were built for."
And so it stands to reason that leasing companies were not designed for consumer-based leasing. In general, they lack consumer-focussed processes, this includes customer services, marketing and technology, things which consumers would expect are not really provided by these big leasing companies due to the legacy of their customer base and their Tech Stack. This can cause dissatisfaction for consumers who largely view them negatively on Consumer Ratings Websites.
So in short, if you get in a dispute with a leasing company it's probably going to be a slow and tough journey, it's just not what they were built for. We built wondle because of this situation, find out more about it here. Like most things in nature, where there is a vacuum (In this case consumer focussed marketing, sales and technology) something fills it. In this case, it was Brokers.
Brokers were not always consumer focussed, they used to specialise in small and local businesses. Before the age of the internet it was heavily regionally based with loyal customers. The web changed this and allowed a national reach very quickly, which in turn allowed some brokers to grow exponentially, further compounded by the explosion in Personal Leasing over the last 5-8 years.
"That said, they serve an extremely valuable function. Because they are so consumer focussed and experts in marketing, they work hard to find and create the best deals."
A brokers' role is to form relationships with the leasing companies and resell their products to the general public. So be clear on this point, they are middlemen, they take no asset risk and don't offer credit, they are intermediaries.
That said, they serve an extremely valuable function. Because they are so consumer focussed and experts in marketing they work hard to find and create the best deals. Leasing companies just put out their own pricing, Brokers gather this, curate it and serve it to you. This takes lots of forms, they are very innovative in how they create great lease deals. Here are a few examples
- Negotiating separate deals with Car dealers in return for volume of vehicles. These often are superior to the deals the giant lease co's negotiated which is counterintuitive but true. It's because of the speed and agility of these (relatively) smaller brokers to source and install the new pricing far outstrips the leasing companies ability to do this. Also, the demands on the dealer of the leasing company's corporate clients mean the discount they use is often not as sharp (As we mentioned above)
- 'Ringfence' hard to get models directly with dealers. Sometimes the discounts on these deals will not be huge but they do give you quick access to vehicles that you would be waiting months for through brokers going through normal channels. If you 'Just gotta have it!' then this is the way.
- Negotiating separate deals with vehicle manufacturers in return for guaranteed pre-purchase. Until very recently this was the domain of only the leasing companies but the Brokers have got in on the action. These are often referred to as 'Stock Deals', 'Tactical Deals' or 'pre purchase' deals. Both the lease companies and the larger broker businesses negotiate these deals and they are on the hook to buy them from the manufacturer whether or not they have found a customer for them. It's a risk for the broker (or lease co) but provides amazing deals for personal and business leases. These are amongst the very best offers you will see.
- Many Brokers offer additional benefits over and above the base leasing company deal. Some offer price guarantees should you see the deal cheaper elsewhere, some even offer free motor insurance. Either way, it's in addition to the leasing company offer.
"That's why we created wondle to help support you in those moments"
Whilst brokers have transformed the sales process to the market place they have not moved the needle nearly as far in terms of 'In Life' services. If you have problems with the leasing company, you should only expect limited help from the broker. Partly this is because it's not what they are geared up to do, they are sales operations who excel in marketing and negotiating deals and partly because you, as a customer (Leasee) are contracted directly with the Leasing company (Lessor). The broker found you and introduced you but that's kind of where it ends. It's definitely a weak point in the whole ecosystem in our opinion (That's why we created wondle to help support you in those moments).
3. Car Dealers
This shouldn't take much explanation, except that it might! Not all car dealers are the same, they have different business models and therefore different priorities. If there is a problem, depending on which dealer supplied it (and via whom), the response will vary. One thing they all have in common is the primary function to "Move Metal", to do this efficiently they use multiple methods
- Selling vehicles directly to Leasing companies. As we mentioned above these are pre-negotiated and often supplied with strict service levels which require a degree of oversight, procurement tenders and account management which is not every dealer's cup of tea. As a customer, leasing a vehicle supplied this way gives you the highest degree of leverage if things go wrong or you are dissatisfied in some way as it makes it easier for the lease co to flex their muscles but you can still find yourself on your own.
- Selling vehicles directly to Brokers. These deals require a little less management and are much more about delivering increased discounts. This has a good impact on their monthly rentals which is great but if it goes wrong in some way, you will find the Lease co will be reluctant to get involved and you might find the broker is not equipped to take on your issue. It leaves you with the problem of dealing with a car dealer who you don't know. It can be a tough position to be in.
- Selling vehicles via the Captive Finance Company. Many dealers act as a broker of sorts for the manufacturer. Most manufacturers have a Financial Services company and they provide finance quotes for their own products but not the full range of manufacturers like a broker model. The dealer is not providing the finance they are simply an intermediary for the finance house.
One thing they all have in common, the primary function to "Move Metal"
Financing has the seemingly magical effect of turning a £50,000 vehicle into monthly payments of £500ish which make them easier to sell. Using a broad rule of thumb car dealers are much more comfortable with Personal Contract Purchase (PCP) and Hire Purchase (HP) than they are with Personal Contract Hire or Business Contract Hire and so you will more than likely be offered one of these products if you walk into a dealership. There are differences and you need to decide which is the right product for you. The FCA is very clear on this that you should be offered the product which fits your needs most closely, in practice that does not happen effectively. Dealers prefer to sell ownership products, like PCP or HP (even though they have hire products) and brokers sell hire products (They don't normally have the purchase/ownership products on new cars). We will write a separate post on the pro's and con's of the different funding methods but be aware that there is bias in the system in both finance and support levels in dispute.
4. Logistics Companies
These organisations are the oil that greases the leasing world's wheels. Whilst the dealer will organise the delivery of your new vehicle, these logistic companies are mostly responsible for executing the processes at the end of your lease. Whilst they are contracted by your leasing company, they are separate organisations and work to service level agreements regarding the process they have to follow. For instance, they are usually obligated to conduct a pre-collection inspection and get you to sign various bits of paperwork. This documentation can be vital or it can be worth very little. Let us explain. Of course, the documentation serves as a degree of evidence as to the condition of the vehicle at the point of collection, however, there are 3 common pitfalls with this.
- The paperwork is usually (not always) old school paper triplicates. The collection agent gets the top copy (of course!) and you get one of the others. This makes it tough to read, replicate and rely on in the event of a dispute. The little car drawings that are used to indicate where damage has occurred are so small and generalised that a small dash can indicate potential damage across half of the vehicle!
- The collection drivers can be casual or gig workers. Of course, some are permanent, long term members of staff but mostly they are retired workers from completely different industries in a second career job. Their role is to make their way to a collection point and fill some paperwork out, they do it for all sorts of automotive businesses and may not even know much about the leasing company you are contracted with. This gives them limited influence over the chances of you getting charged penalties. In fact, one of the most common things we hear is 'The collection driver said the vehicle was in fantastic condition!'. With the greatest of respect to these agents, who do a fantastic job and are largely lovely people in our experience, what they say does not count for much in the final shake-up. They just want to fill out the paperwork and maybe get offered a quick cup of tea!
In fact, one of the most common things we hear is 'The collection driver said the vehicle was in fantastic condition!'.
- The third point here is that in almost all cases, the contract you signed is written in such a way that states the 'Final' inspection is done by an agent away from the collection site. This is often conducted at an auction site by a team of expert engineer inspectors (Which the collection drivers are not). Let's talk about the role of inspection and auction houses.
Auction and Inspection Houses
NewsFlash: The damage you will be charged on your lease vehicle will not actually be repaired in the majority of cases. The damage penalties will be banked by the leasing company and will be accounted for as reflecting the impact on the resale value at auction. If there is a correlation between the amounts you are charged and the impact on the resale value then let us know!! Even if it does (Which it doesn't) in our opinion, it is almost always cheaper to get the damage repaired before it is returned (That is why we started wondle).
"NewsFlash: The damage you will be charged on your lease vehicle will not actually be repaired in the majority of cases."
So as you can see the inspection is the last chance the leasing company has to invoice you for any charges and so they spend lots of time managing the inspection companies to ensure they are spotting and billing for all eligible damage but also staying within the BVRLA Fair wear and tear guidelines. They do not want to lose cases that escalate to the BVRLA mediation service or the Financial Ombudsmen mediation service. In addition, the FCA (Financial Conduct Authority) take a very dim view of customers not being treated fairly and all Leasing Companies and Financial Services organisation take what the FCA thinks very seriously indeed. (we will talk about this in the next point).
Back to the vehicle inspectors, they are much more used to examining vehicles and miss very little. In fact, to watch them work is remarkable, they can spot damage instantly that would take a layperson some time to focus on! They document all damage and register this with the leasing company who then ask them to apply their own matrix of charges. This is the invoice that you receive. They are very good at what they do and without VERY high-quality evidence that something is unfair, you will face an uphill struggle in winning an argument with a mediation service. (Spoiler Alert! The art here is getting a clear estimate of what they may say the charges are, WELL before you send the vehicle back, that gives you the option and control to decide how you deal with it.........ahem, have you met wondle?)
"Back to the vehicle inspectors, they are much more used to examining vehicles and miss very little."
After the inspection has been completed and the invoice sent the vehicle will be immediately auctioned. These happen mostly online and so are very quick. They are generally trade to trade sales. Car dealers and the big online car sales websites buy them and have them delivered to their preparation centres (Sometimes the same place as the auction house). The bigger damage is repaired, the smaller stuff is sometimes left alone, it depends on the type of car and its age, then the vehicle is placed on a website for sale to retail customers. This all happens very quickly and from leaving you, the vehicle could be prepped and on sale within 2 weeks. Certainly, by the time you disputed any invoice, it would be with its new family!
Industry Association, Dispute Resolution and Regulatory Bodies
There are a few industry bodies that exist in the Leasing Ecosystem. For the purposes of this blog post we shall focus on the ones which affect the consumer. Let's start with the heavyweight
- The FCA - The Financial Conduct Authority are a regulatory body that governs all things banking, credit, mortgages, in fact almost all financial markets. They oversee leasing companies and financial services companies to ensure that customers get a fair deal. They authorise these lease co's to operate and without the FCA's approval, they cannot trade. This makes them EXTREMELY important to financial institutions. But just before you rush off to tell them about how you have been mistreated by your provider, you need to know they do not get involved in individual cases, they regulate industries. They look at trends, forecast potential problems and consult with trade experts in order to (try) and future proof for consumers. So they will pick up repeated cases of poor practice by any given industry it will be at a macro level rather than individual cases.
- The BVRLA - British Vehicle Rental and Leasing Association. This is the industry trade body. Its members are the leasing and rental companies who also pay subscriptions to pay for the activities it conducts. It lobbies on behalf of rental and leasing companies, facilitates the sharing of best practices within the industry, provides training to members employees, it provides data and insight to the government who are making policy decisions that affect its members or its members' clients which include consumers and well as corporate clients.
- They also are a government-approved ADR (Alternative Dispute Resolution) organisation. This means at any point where you fail to reach an acceptable agreement with your provider, you can escalate to the BVRLA for a third party view. The Lease co has generally already agreed to abide by the decision given by the BVRLA ADR service. The BVRLA will look at the evidence and give an opinion based on the Fair Wear and Tear guidelines. Even though the BVRLA is paid for by its members, in our opinion, you can rely on their impartiality but that comes with a giant caveat, DON'T expect to get a positive result. Why? We'll explain.
- The BVRLA publish the data from its ADR activities. Most complaints don't get this far as either the Customer Service teams in the Leasing company have resolved the issue or the customer has just given up due to lack of time and frustration. So you can assume that consumers who have invested the time and effort to go this far really believe they are in the right or have been treated unfairly and therefore would expect a good success rate, right? Wrong.
- The latest stats published year ending 2020 that 8 out 10 cases referred were found in favour of the member organisation. So either, these consumers were pursuing spurious claims or there is a huge misunderstanding somewhere along the way. We think it is the latter and that the topic needed further examination and this is why we launched the wondle concept to give consumers the understanding and control over leasing end of contract damage charges.
- Financial Ombudsman - This is an ADR service that is more generalised than the BVRLA, however, they do work together to achieve consistency. As a consumer, you can choose to escalate to either body to have your case heard. The FO deal with over 1,000,000 cases every year in all aspects of financial matters, credit and loans, banking, debt collection etc. It aims to ensure fairness in the outcome. The leasing company has to pay the FO for every case that it deals with which is why the lease co will agree to goodwill payments for damage charges sometimes, even if it thinks you are wrong.
The way these three players interact can create multiple types of outcomes for the customer. Understanding what the influencing factors are can help you navigate and negotiate your way to a better deal and out of an unwanted situation. This perspective on leasing is not often written or talked about as it does not help sell cars or finance products but in our opinion when dealing with any of these it pays to be in control of the conversation.
The fact of the matter is, you are most likely to be dissatisfied with a leasing company BECAUSE of damage or charges applied at the end of the contract. In 2020, that was what 75% of Complaints to the BVRLA dispute resolution service were about. (BVRLA 2020). We hope you found this article helpful, for more bitesize information on this topic please follow us on Twitter or Facebook
This topic is also why we developed the wondle products. If you want to find out more on how wondle puts you in control of your leasing contract please click here