Car manufacturers warned to follow the law in leasing offers

By
|
13 August 2014

Car manufacturers are being warned to ensure they comply with the law after instances were found when some provided different offers via leasing companies for the same product depending on the end-user of the vehicle.

The practice came to light when a customer discovered they would pay more on a lease as a private user than if they were supplied as a business for exactly the same vehicle.

The practice appears to be prohibited under the Supply of New Cars Order 2000, which states that car manufacturers cannot discriminate in terms of the discount for a new car with a contract hire company on the basis of whether the recipient of the vehicle is a fleet customer or not.

Rob Chisholm, managing director of leasing broker Applewood Vehicle Finance, said he has been trying to tackle individual manufacturers on this issue over a long period and, with one exception, has been met largely with resistance.

He told Fleet News: “The manufacturers like to protect their franchised dealers’ retail interest which, on one hand, is understandable because they have made a significant investment in that franchise, but should that really be to the detriment of the consumer?

“The problem emanates from the terms the manufacturer imposes on the leasing company rather than what the leasing company wishes to do.

“If it claims there are other issues at play, whether it’s to do with VAT or maintenance or exposure on residual values, this is nonsense because the lease deal is meant to reflect the true operating cost of a vehicle.”

Chisholm was interviewed for the BBC radio programme You and Yours over a disparity in the monthly lease rate for Volkswagen Golf R models, depending on whether the end-user was a retail customer or a business customer.

In the programme, Louise Wallis, head of business development at the National Franchised Dealers Association (NFDA), claimed the picture was more confused than suggested and there was a long history of different terms by dealers structured for whether the vehicle was supplied to consumers or business people.

But Chisholm said that after taking the matter up with Volkswagen UK last autumn, the manufacturer revised its procedures within days and now complies fully with the Order, but many other manufacturers still could be in breach of the law and seem unwilling to change their practices.

He is now urging any leasing suppliers who are coming up against the same issues to contact the Conduct and Marketing Authority, which has said it would investigate any complaints.

“In fighting this I have received no support from within the industry – whether that be from the leasing companies, the manufacturers, contemporaries or the BVRLA,” said Chisholm.

“It is too hot a potato for them to handle or they are too scared to put their head above the parapet. The manufacturers feel that nobody will challenge them.”

The Society of Motor Manufacturers and Traders (SMMT) appears to agree with Chisholm and, after being approached by Fleet News, said in a statement: “SMMT takes its responsibilities under the Supply of New Cars Order very seriously. We will be reminding our members of their obligations.”

Gerry Keaney, BVRLA chief executive, said: “The BVRLA is not privy to the commercial terms agreed between its leasing members and their vehicle suppliers, but we support the SMMT’s initiative to remind its members of their obligations under the Supply of New Cars Order 2000.” (Source: Fleet News)

Market insight

Comments (2)

Login to comment

Comments

Joolz47 - 13/08/2014 16:09

I don't understand the "agenda" here. Manufacturers have different schemes in play all the time, and many of the support and subsidy terms offered to private individuals are not available to the business market (deposit contributions, subsidised low interest rates, free insurance, servicing etc.) so there is an element of balance. The business market are often buyers (or lessors) of multiple vehicles and as such they expect to have enhanced terms just as anyone able to commit to multiple or bulk purchases of any product or service might. Differences in leasing terms between those offered to private individuals and business users reflect the experience or objectives of the specific funder or manufacturer in different sectors of the market. Differences in transaction values tend to level out over time once subsidies and support are taken into account. The leasing companies will generally receive the same level of discount irrespective of whether the end user is a business or private user - the difference tends to be whether the end user themselves has a rebate agreement with the specific manufacturer, which is passed direct to the leasing company by the manufacturer on behalf of the end user for inclusion in the rental. Manufacturers' own schemes tend to have a complimentary PCP product running in parallel with any business specific leasing product where the private individual does not have the ability to recover any VAT but often benefits from deposit contributions and low funding rates.
- 0
- 0
- Rob Chisholm, Applewood Vehicle Finance Ltd - 14/08/2014 12:29
  
  @Joolz47 - Hi Jools47. The issue is that the manufacturers should not be allowed dictate to the leasing company what products or end users they can use the leasing support/Volume Related Bonus/Discount in or for because of their obligations under the Supply of New Cars Orders 2000. But tThey do. They have no right to say to the Contract Hire company "We wish to offer you 10% VRB for each vehicle you register and/or fund. But please don't use it in Personal Contract Purchase". That is price manipulation and denying the consumer the terms that they should be entitled to. It is also effectively denying the consumer an equal opportunity to determine the funding product which best suits their needs. Not what I would call 'Treating Customers Fairly'. The personal leasing market is growing and so this is an issue that will only get bigger. The market has changed in how consumers acquire the cars. Many of the manufacturers are stuck in the bad old days. It has to stop. This is not a crusade against the franchised dealer, with whom I have a great deal of sympathy, and who are dealt a rough enough hand as it is from the manufacturers. We ourselves don't transact a significant amount of personal lease deals, but that doesn't mean that those customers we do deal with should be treated poorly because of a breach of the Order by some manufacturers. There are some manufacturers who are acting quite correctly and observe their obligations completely. It would be wrong of me to name those because any omitted from the list would automatically be thought to be in breach in our opinion. It's not for us to determine if they are in breach - that is why we have the Competition and Markets Authority, who will be given the opportunity to make their own decision on this. What is telling is that there has not been a single voice raised against my assertions in the public domain. Listen to it ... the silence is deafening.
  0
  
  0
- Joolz47 - 14/08/2014 14:34
  
  @Rob Chisholm, Applewood Vehicle Finance Ltd - Hi Rob, by this arguement a customer wishing to buy a quarter pound of humbugs should be able to purchase them at the same unit price as the retailer who commits to buying the whole jar. The market divides into clear segments - Leasing Companies, Retail Motor Dealerships providing (in the main) a portfolio of finance products aimed at providing solutions for all market segments, and Finance/Leasing Brokers who tend to compete primarily on price and play the mainstream leasing companies and dealers off against each other to secure commissions for themselves. It is this latter part of the market where distortion is most apparent being driven as it is by many participants who make little or no commitment to product, aftercare or relationship building, but who demand enhanced discount terms to enable both low end user rentals (generally at unsustainable level) and high commissions for themselves. Main dealers have fixed discount terms, as do the mainstream leasing companies (depending on manufacturer, negotiated by either dealers or manufacturers). The underwriting criteria applied by the various financial institutions will vary and their willingness to accept specific types of customer, (just like with credit cards and bank loans) will reflect their experience and perceived risk and hence rate. Private individual have been notoriously difficult to recover excess mileage and refurishment costs from, and this has led to several participants in the market withdrawing from personal contract hire as a funding route. Support terms (or VRB) generally have attached conditions, including minimum retention periods, and since PCP takes control of the vehicle's registration away from the funder, manufacturers aren't going to extend support to this type of transaction, preferring to offer enhanced terms directly through their own dealer networks where they enjoy more control and commitment.
  0
  
  0
- Rob Chisholm, Applewood Vehicle Finance Ltd - 15/08/2014 13:54
  
  @Joolz47 - Hi. I think I follow the logic, but I have to say that I believe it is flawed. It is also far too complicated to address every point you have made on a forum such as this. I would strongly object to you lumping all leasing brokers into the categories you have done. As a business we have been trading since 1989 - we have two main funders; one since 1991 and the other since 2004. We will NOT use the manufacturers leasing routes for our customers except as a last resort for a variety of reasons, but mainly because we have no relationship with them meaning we cannot directly assist the customer should a problem arise, which is what we would want to do. Beyond that, for the past 10 years over 80% of the deals we write inc. Full Maintenance - this indicates that the sort of customer we supply is more concerned with cost control and value for money as opposed to 'the lowest possible price'. What needs to be understood is that as far as the manufacturers and the Act are concerned 'the customer' isn't the end-user when paying leasing support or VRB etc, but the leasing company themselves - they are the volume buyer, not the end-user. By then attempting to prevent the leasing company using that support for their customers is where a breach of the Act comes in. There is no argument for not supporting this from a consumer point of view. The dealers and manufacturers wish to carve the market up for their own benefit, not for the benefit of the consumer. Nobody places obstacles in the way of motor dealers conducting leasing business with major fleets - it can't be all one way I am afraid. Support Terms should not have any conditions attached to them save for cash transactions. Believing that vehicle registration within PCP is an issue that would have any significant impact on the market is an unsubstantiated fear. The only market that has abused support terms to any significant or consistent degree over the years has been the daily rental market. That is nothing to do with the leasing market at all. The whole point of my argument is that the practices being practised by SOME manufacturers are illegal. Whether you or anyone else agrees with the Act is of no consequence. You may think that breaking the speed limit by 5mph should be allowed - the law says something else entirely. The upshot of this is that the consumer is being denied both value for money along with their consumer rights. That cannot be justified. You are welcome to call me to discuss further if you wish. I'm not going to turn this into an advertisement for us, but you won't find it difficult to find our contact details via our website. Kind regards.
  0
  
  0
CGH - 14/08/2014 13:33

By chance, the next e-mail I received was from a leasing company. They are offering a Mercedes E Class Estate at £268 plus VAT per month to business users, even if they have no other company vehicles, but £300 plus VAT to private individuals - same contract terms. So, the business user benefits from a "fleet discount" given to the leasing company but the private individual doesn't. That's the simple issue here, and it's illegal!
- 0
- 0
- Rob Chisholm, Applewood Vehicle Finance Ltd - 15/08/2014 13:30
  
  @CGH - unfortunately, that in itself is not illegal. If the finance company wishes to charge a different rate due to the bad debt ratio in different area's of the market then that is entirely their choice. If the difference is driven by a demand from the supplier (manufacturer) to the leasing company then that is a breach of the Order and should be challenged at very opportunity. The way to check is to request quotes on a range of cars for both Business Use and Personal Lease - preferably on Personal Contract Purchase (PCP) as that is where the illegality is likely to show up first. If there is a difference (save for VAT) in some vehicles but not in others, then I can absolutely guarantee that the differences are caused by the illegal Terms the manufacturers is placing on the leasing company. If there are inconsistent differences across all of the vehicles then it is at least partly a risk based decision and policy by the leasing company. In reality there is no reason why a Personal Contract Hire (PCH) should be any different in rate to a Business Use Contract Hire agreement, simply because the residual value risk is being borne by the leasing company and would be the same for each funding product. However I can understand a slight difference when it comes to PCP based on residual value - setting the balloon payment (or Guaranteed Future Value) a little lower will result in a higher monthly rental, and may also make the option of buying the vehicle at the end of the contract a more attractive proposition to the customer.
  0
  
  0