THE UK's contract hire and leasing sector has undergone a radical shake-up this week amid continuing residual value turmoil which has seen one of the biggest companies in the sector increase monthly rentals by 3-4%. The shake-up has seen the Halifax buying a 50% stake in Lex Vehicle Leasing for £162.5 million; General Universal Stores deciding not to sell its contract hire subsidiary Highway Vehicle Management a month after putting it up for sale; and BCH Vehicle Management confirming a statement was imminent about ownership change.

The Halifax's long-expected entry into the contract hire and leasing sector underlines the long-term potential of writing profitable business. But the present slump in residual values has resulted in GE Capital Fleet Services announcing that prices for renewed contracts and new business will increase by between 3% and 4%.The move adds £10 a month per vehicle to the average lease, totalling £360 over the life of a three year/60,000 miles contract.

GE's move is likely to be followed by rival companies. Norman Donkin, director general of the British Vehicle Rental and Leasing Association, defended the industry move, said: 'Both contract hire and daily rental business is dependent on used car prices and when they go down, that is reflected in rates.' Residual values have fallen by up to 10% compared with last year, with leading firms laying the blame squarely on the car industry for pumping out more cars than there are buyers.