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. Last Updated: 07/27/2016

Car to Lease?

Everywhere you turn there are advertising banners claiming the advantages of leasing a car as a way of financing the purchase of a vehicle and more than a quarter of all new corporate vehicles in Russia are now bought under lease.

All types of vehicles can be leased, from passenger cars costing less than $10,000 to large trucks and expensive vehicles. General-purpose trucks, trailers, thermal containers and autoloaders are the most popular among leasing consumers. Due to the construction boom in Moscow and the regions, the share of special construction vehicles is also very high. As for passenger vehicles, leasing customers are mostly interested in cars costing from $10,000 to $20,0000, which account for 42 percent of all passenger transportation.

Leasing has become popular because the interests of all parties of the deal, including leasing consumers, investors and vehicle suppliers, are taken into account.

Organizations are interested in leasing most of all as a way to stagger payments over time. The economics connected with income and property taxes in leasing contracts is also an important factor. Moreover, in most cases a deposit as well as a guarantee is not needed (as the leased object is owned by the party offering the lease during the contract). Unlike banks, leasing companies are also more loyal to the financial state of the borrower's activities. Thus, vehicle leasing is often more attractive to corporate clients than buying cars on credit.

Car leasing is one of the most attractive business trends for leasing companies themselves. A car is a high-quality, liquid provision from the point of view of the offering company. The property rights of the leased car along with the advance received from the customer almost fully insures the leasing company against possible nonpayment. The secondary car market is highly developed, and in case of nonpayment the leasing company can easily recoup the loss by selling the car.

The advantages car leasing as well as an absence of barriers to the market segment results in an annual influx of new companies (now more than 400 companies) and enormous growth of the market itself (during 2006 by about 80 percent, with new vehicle leasing deals totaling about $4 billion).

As a result, the vehicle leasing segment has the highest competition on the leasing market. The rates offered by leasing companies are practically the same, so leasing companies have to develop new methods of working with clients to keep their positions. The following leasing products recently appeared in the segment:

• Full-service leasing. Payment of all taxes, registration of the vehicle, insurance and technical servicing.

• Operational leasing. The vehicle is given to the customer for a period, which is much less than the amortization period of the vehicle. Then the object is returned to the owner, who offers it to another customer. Often it is not advantageous for clients to become owners by means of leasing contracts, so they can renew the auto park all the time by means of operational leasing.

• Leasing for individuals. Occurs more often as a rent with a right of further buying out. This product is of interest most of all to businessmen without the formation of an organization.

In addition to the development of new products, leasing companies use other competitive advantages: fast request examination, easier access to products for regional clients and special supplier programs.

The basic competitive advantage is the speed that requests are examined and deals are done. This demands good relationships with suppliers and allows for vehicles to be supplied in time, said VSP-Leasing general director Andrei Pozhidayev. "Sometimes it is more important for the client to get the vehicle as soon as possible, rather than seek an offer 0.5 percent to 1 percent cheaper," he said.

The general director of UralSib leasing company, Yelena Gushina, said the main advantage is a well-developed regional network. "The main criterion for choosing a leasing company for small and medium-size enterprises is accessibility and the operational properties of financial decision-making," she said.