Cost of living crisis: why are vehicle leasing prices on the rise?

Published on October 18th, 2022 | by Sophie West

Before we get to the reason of why vehicle leasing prices have risen, we firstly need to understand the overall vehicle landscape, and how it has changed drastically over the last few years, caused by a few key factors:

COVID-19 Pandemic

During the last few years of economic uncertainty due to the coronavirus pandemic, people were hesitant to buy new cars. They also didn’t want to use public transport, for higher risk of infection. As a result, we saw more demand for used cars, which in turn drove up used car prices.

The pandemic was also one of the main reasons for the global shortage of semiconductors and chips, for which many new cars rely on as components.

Semiconductor Shortages

Production facilities shut down as a result of global lockdowns, causing stock to deplete. Additionally, more individuals were forced to stay at home and therefore chose to improve their electrical equipment (computers, cameras, monitors) to keep them connected. The high demand for phones and tablets saw a shortage in semi-conductors, which meant fewer new cars could be produced, impacting supply and in turn increasing the demand for used cars. The figures published by SMMT report that UK car production has fallen by 20% with only 68,790 units produced compared to the previous year’s production of 86,052.

Brexit

The country’s departure from the European Union (EU) caused more economic uncertainty about the future, which also saw people investing in second-hand cars instead of new ones. Car manufacturers were impacted by the movement of products across Europe, with the change in import/export processes and additional time getting through Customs causing damaging delays to production lines.

Ukraine War

The Russian invasion of Ukraine has impacted automotive supplies and caused delays in the production of new cars,  also contributing to the higher prices of used cars. Some of Europe’s largest car manufacturers have plants in Ukraine which were making vital components and have, for obvious reasons, currently stopped production. On top of this, 50% of the high-grade neon used to make semiconductor chips comes from Ukraine.

Whilst we continue to live in a global recession, the cost-of-living prices, amongst high inflation, have continued to soar, affecting petrol, diesel and EV drivers. The cost of leasing a vehicle has also increased, but why:

New Car Prices On The Up

As mentioned above, the supply vs. demand factor plays a huge role in the increase in vehicle prices, which in turn has an impact on vehicle leasing costs. The want for new cars again is high in demand, with low supply, so their price has increased. The cost of energy is a huge expense in the manufacturing of new vehicles, accounting for 17% of final energy consumption in the UK (Carbon Trust). This has a knock-on effect causing the cost of new vehicles to rise to cover this overhead.

Maintenance Costs

The cost of vehicle maintenance and repair has also increased in the current economic climate. According to data from the Office of National Statistics (ONS), car maintenance costs have risen by 3.7%. A combination of a shortage in parts, higher energy bills and increases in labour rates have all contributed to the rise in costs.

Finance Costs & Interest Rates

People are much more likely to purchase a new vehicle via finance rather than cash. This has driven the base rate up, meaning the monthly price of new vehicles has also increased. Central banks are also rising their base rates to combat inflation and slow down spending. With businesses having wide access to capital, manufacturers are being stung by the additional costs, causing the majority of manufacturers to have to raise their prices.

Whist we can’t negate all of these issues affecting the average cost of a vehicle lease, as we are an independent vehicle leasing company we can help you search the market for vehicles that meet your needs, and work within your budget. Call us now on 01527 571605.