Anna Hee Ustvedt

What impact does Covid-19 have on the leasing industry?

According to Aristotle, wealth should not be found in property ownership but in the right to use it. Although the world has changed a lot since Aristotle wandered the streets of Athens more than 2,300 years ago, his thinking is far from outdated.

The idea behind leasing, which is a current concept, is the same. When individuals and companies choose to lease rather than own, they believe that the value comes from the right to use the leased product and not from its ownership.

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The development of the leasing industry

Maybe Aristotle had the concept behind leasing in mind when he preached more than 2300 years ago. Leasing is not a new phenomenon, and the earliest signs of a leasing business are found before Aristotle's time - namely approx. 3000 BC. At that time, leasing was expressed in the form of asset rent. The farmers of the towns rented (or leased) agricultural implements from priests who had the role of community officials. However, much has happened since then, and the leasing industry has evolved to include everything from cars and office equipment to IT systems, machinery, financial services, etc.

Over the years, leasing has become a popular way to gain access to various assets. Leasing enables smaller businesses to grow faster and more stably, providing access to assets that are otherwise out of their financial reach. For private individuals, the possibility of leasing also means access to products and services that were otherwise out of financial reach. For example, it can be for the dream car or, in general, the vehicle that can make everyday life cohesive.

 

A growing industry

More and more people have realized the benefits of leasing, and today the concept is spread worldwide - both among individuals and companies.
At the beginning of 2020, it looked good for the leasing industry, which has experienced growth for many years. In the first week of March, the White Clarke Group, in collaboration with the World Leasing Yearbook, published their latest issue of the Global Leasing Report. The report contains a comprehensive analysis of trading environments and car and equipment leasing trends in 50 countries.

The report shows that the global leasing industry has grown 131 percent over the past nine years. The growth can be attributed to the leasing industry in Asia, North America, and Europe, which account for 95 percent of the global leasing industry. Today, the leasing industry is undoubtedly a significant part of the worldwide economy.

 

But then Covid-19 came…

However, much has happened since the report was published and not least prepared. All over the world, authorities are trying to minimize the spread of the coronavirus. This has consequences for large parts of the business community - the leasing industry is no exception.
For leasing car dealers, Covid-19 has had several consequences. First, the public demand for new vehicles has fallen worldwide. Most likely, society's closure has meant that many works from home and therefore do not have the same need for a car. Also, the economic situation people have been brought into probably also plays a role in the lack of demand for new vehicles. The closure has also had the consequence that it has not been possible for many dealers to get hold of the cars that were to be delivered to customers.

For both car and equipment leasing, the closure of factories worldwide has also meant that it has been more difficult to obtain essential products. For example, according to LeasePlan, car components are imported annually from China for more than DKK 231 billion, but since factories in China have been closed for an extended period, there have been problems in accessing the components in time.

Although Covid-19 has significant implications for the leasing industry, it is still expected to grow. However, to a lesser extent than under normal circumstances. According to The Business Research Company, the global leasing market is expected to grow from $1,398.5 billion in 2019 to $1,415.3 billion in 2020. This corresponds to an average annual growth (CAGR) of 1.2 percent.

When we are on the other side of Covid-19, the market is expected to recover and grow to an average annual growth (CAGR) of 8 percent from 2021 and reach $1776 billion in 2023. Despite Covid-19, there is great confidence in the leasing industry's continued growth and success. We look forward to following how the leasing industry's future develops and believes that it is moving positively.