New Deal Helps Leasing Market
The Sun Herald
Saturday May 28, 1994
A NEW form of arrangement is bringing life back into the prestige/luxury car leasing market hit by tax and depreciation changes.
With owners at the top end of the market tending to hang on to their vehicles a bit longer during the economic downturn, a number of finance companies left the field.
But competition is still strong, rates are competitive - in some cases down to 9 per cent - and novated leases are increasingly attractive to companies providing a prestige car in the executive salary packages.
With a novated lease, the employee leases a car from a finance company and then sub-leases the vehicle to their employer on an operating lease basis.
The three parties, employer, employee and finance company, enter into a novation agreement which means the obligation to pay the lease rentals is transferred from the employee to the employer.
If the executive leaves the company the agreement expires and the obligation to pay the lease reverts to the employee.
Novated leases are more expensive with double hiring duty to be paid and they are not the prime choice of the finance companies in the market.
They take the arrangement back to dealing with an individual rather than the employer but the demand from the marketplace has driven the finance houses into the area.
"The benefit is that the car is not on the company books and it could transpire that the new executive replacement doesn't want to drive the diesel-engine four-wheel drive sitting in the company car parking space," said David Smith, of Auto Search.
"The actual upper end of the market above, say $80,000, is quite slow and small. They will refinance after four years rather than buy up.
"The leasing side of the business has really had a lot of changes over the last 12 months or so because of the different structure in the tax and depreciation.
"Novation is starting to become very popular because companies can see that if the executive wants to bail out, or things don't work out, they don't have a $70,000 car on their books."
Mark James, of GIO, confirms that only a few companies are now in the market for leasing of prestige cars.
"The depreciation does work against you and the trouble is the limit means the financier has to raise the interest rate to get a reasonable return," he said.
"We can go to cars up to $55,000 without too many troubles but above that it works against us. We see vehicles above that figure as being in the luxury range.
"The economics drive it as well as the way the tax rate is structured," he said.
Mr Ryan said GIO offered lease packages up to five years with residuals of from 20pc to 60pc depending on the type of car whether it was city or country driven and what distance it will travel.
A spokesman for St George said most finance organisations would only lease to companies or self employed people and their policy was the car had to be valued over $20,000.
Contracts were for three, four or five years but the standard was usually the 48-month period with monthly payments.
The residual value, which could vary, was payable at the end of the contract.
"Say you are buying a car for $30,000 with the standard option of four years with 40pc residual. That means that $12,000 is payable by the customer at the end of the term," he said.
The spokesman said the person or company leasing the car was responsible for all extras such as maintainance and insurance although some companies provided operating leases which took this into account.
"Over the last year or two a lot of finance institutions have left the leasing market and, as well, I don't think there is as many people looking for leases," he said. "Certainly there are not as many companies around now prepared to buy leases and the market has become very hard."
© 1994 The Sun Herald
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