In recent days several CFOs of companies with large vehicle fleets have been informed by their leasing firms that a new, updated price list will soon be distributed, regarding new contracts and renewals in January. A substantial percentage rise is forecast for the leases paid by employees, amounting to several hundred shekels per month.
The main reason given for the hike is revalued residual prices for used vehicles after the leasing period, which represents a basic component for pricing contracts. The leasing sector estimates that the future value of used cars is expected to drop significantly and thus there is no choice but to raise leasing prices, even though the price of new vehicles is expected to decrease in January.
Another factor driving up leasing costs, and perhaps the main one, is the sharp increase in the cost of credit, which is anticipated following the recent changes in the capital markets in Israel and worldwide.
Today vehicle leasing is the largest borrower in Israel after the real estate sector. The figures are impressive: Israel's leasing fleet amounts to about 175,000 vehicles, which are worth some $4-5 billion. One third of this fleet is renewed each year at the end of the leasing period. That is to say, each year the sector purchases new cars worth about $1.5 billion.
Israel's leasing companies only have a limited number of ways to raise these sums. One is credit from vehicle importers, although this is only short-term credit. The other options are via banks and the capital market: bank credit frameworks, bond issues and private placements, mainly to institutional investors. Israel's banks and insurance companies, which are the largest lenders to vehicle leasing firms, are beginning to implement a significant revision of their risk management, and are carefully examining their guarantees.
Israel's vehicle leasing activities are supported by credit of NIS 15 billion and over the past decade this sector has demonstrated great stability. Only time will tell if this stability will continue.
Published by Globes [online], Israel business news - www.globes-online.com - on September 28, 2008
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