So Jaguar have a new logo. But they will not be selling a new car between now and 2026…
I wonder what Sir Lyons would have to say about that at every monthly board meeting for the next year or two?
We’ve been thinking about how leases (should) work when all is well, and what is going wrong with leases on EVs.
90% of new cars are bought on finance, and most of that finance relies on the residual value of the car in 2, 3 or 4 years at the end of the lease. Take a staple like a VW Golf (not that you can buy one anymore!).
Let’s say it costs £20,000 new. If the finance company sees that after 3 years ands 30,000 miles they are typically worth £10,000 then they base their lease around that. They have to advance £20,000 to the dealer to buy the car but they know they will get £10,000 back at the end, so your lease is based on £10,000 (plus interest and costs) rather than £20,000. This makes cars look cheap and you have a low monthly fee to pay to drive a new VW Golf.
VW also own Audi – and the Audi A3 is basically a posh Golf. They charge more, so it may be £23,000 to buy a new Audi A3. So you would expect it to cost more per month to lease an Audi A3 per month? Normally yes, but Audis are highly sought after so they hold their value better – let’s say the A3 is worth £15,000 after 3 years. That means the finance company only has to cover £23k – £15k means £8,000 over 3 years. So it actually costs less to lease an expensive Audi than a Golf. Then you have the Skoda equivalent that may be cheaper to buy than the Golf but loses more over 3 years, so it costs more to lease.
This is why a few years ago the motorways were full of Audis and BMW company cars.
So that is my gross over-simplification of car finance. But EVs have messed all the maths up. Thousands of expensive EVs were financed at £50k to £110k per car. The finance companies expected them to hold their value – but they have plummeted. That is leaving finance companies holding big losses that are crystallised ever time a 2 or 3 year old EV gets sold for bog all at an auction. You can see what that does to future lease prices for electric cars. If the new price is £50k but they now know the car only fetches £20k at aucton then that is a lot of money to pay per month to lease one. And what is the opposite effect? Every now and again I notice a lot of a certain car on the roads.
For me it is the truly vast new Land Rover Defender. Is there a manufacturer lease discount thing going on? Yes is the answer. The new price of a base model Defender is £58,310. And what do you suppose you can lease one for? The answer is an incredible £344 per month! (including VAT). So you are paying £4,132 per year to drive a £58,000 car around. Mathematical madness! Jaguar Land Rover are selling their cars to lease companies for a lot less than £58k! But of course the J bit of JLR has no cars to sell until 2026, so the LR bit has to do a lot of heavy lifting!
How long can maths like that continue? Not long, I would suggest.
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