Fleet News

Lex leasing rate rise set to open floodgate

LEX Vehicle Leasing is to increase three year/60,000 mile contract hire rentals by an average of £12 a month/3% across the board - a move which is likely to trigger similar rises across the industry.

The increase, which follows a traditional October review of residual values, comes as residual value losses continue to massively outstrip lower new car prices and Lex Vehicle Leasing predictions of a weaker economic outlook over the next three years.

This week CAP Motor Research's index of new and used car prices revealed that list prices for new cars fell an average of 1.2% across all sectors - an acceleration from an average fall of 1.1% in August and three times the 0.4% reduction recorded in September last year. Leading the falls was the executive car sector which saw a new car price decline of 2.9% on average. However, the subsequent price drops by Ford and Vauxhall came too late to be included in September's figures.

The differential between new and used car prices coupled with predictions of a weaker economic outlook is the second major reason for Lex Vehicle Leasing's decision.

Managing director Jon Walden said: 'We have to think now about the economic outlook in three years time when we are setting rental rates. We see lower corporate profits, higher oil prices and the Pound staying strong against the Euro. The latter therefore increases the risk that there will continue to be a gap between UK new car prices and prices in Europe and therefore we can only see a continuation of what has happened in the last few years.'

The rates rise follows buoyant residual values in 1996, 1997 and early 1998 and Walden said: 'Companies got carried away with used car prices during those years and expected that situation to continue. As reality sets in the residual values achieved during the boom have been seen to be inflated and unsustainable,' said Walden.

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