Russia has historically posed a challenge to fleet and leasing providers, owing primarily to the sprawling territory that their vehicles need to service. However, rising maturity and growth centred around the country’s larger cities, increasing demand from SMEs, and new application segments like last-mile delivery, along with the prospect of innovative business models like Mobility-as-a-Service and alternative powertrains such as electric vehicles, are fueling the development of the Russian leasing market.
These were among some of the findings from Frost & Sullivan’s recent research into the fleet and leasing markets of 26 countries in Western, Eastern, and Central Europe, the Nordic region, and Russia.
Russia vs the EU 25: Financial Leasing Dominates
According to our research, an estimated total of 16.3 million total passenger vehicles (PVs) were sold in the 25 EU markets (referred to as EU25 from now on) covered in the study, with 1.6 million sold in Russia. Within the EU25 markets, leasing registrations (operational leasing, financial leasing, and private leasing) constitute 33.0 % of total PV registrations, whereas in Russia it is much lower at 8.8%. Despite the economic slowdown and budget cuts, particularly in Western European countries, new purchases through the operational leasing channel account for 15% of PV registrations, equating to roughly 2.5 million vehicles.
As economies begin to recover, the Russian PV market is expected to grow faster than the EU25 average, at a CAGR of 3.0 % from 2019 to 2024, compared to only 1.5 % in the EU25. Similar trends will play out in the light commercial vehicle (LCV) segment, where overall registrations currently estimated at 2.2 million in the EU25 and 112,000 in Russia, are projected to grow at CAGRs of 2.5 % and 6.1 %, respectively.
According to our research, SME demand is, and will continue to be, the main driver of the Russian market. Another unique feature is the high number of taxi businesses that are currently undergoing fleet replacement. Consequently, PV fleet registrations in Russia are projected to record a CAGR of 6.2 % between 2019 and 2024, compared to 2.8 % for EU25 countries.
Over 26,000 PVs were purchased by operational leasing companies in Russia in 2019, placing it in 15th position behind Hungary and Portugal in terms of operational leasing registrations. Russia’s operational leasing market is expected to remain stable in the short- to medium-term, as it relies heavily on financial leasing as the primary method of leasing new vehicles.
In terms of the top 15 countries for financial leasing registrations in Europe, only Germany, Europe’s largest market for financial leasing vehicle registrations, ranks above Russia. With over 118,000 new PVs registered in financial leasing, the Russian market is ahead of countries such as Poland, France, and Sweden.
Mature leasing markets such as the UK, France, Germany, Belgium, the Netherlands, Spain, and Italy are expected to grow steadily, with growth impetus for the overall European leasing market coming mainly from emerging markets where leasing is gaining traction. Meanwhile, as the EU25 countries continue on their path to recovery post the COVID-19 crisis, operational leasing is poised to grow at a CAGR of 6.1 %, while financial leasing is anticipated to grow at a CAGR of 4.3 % between 2019 and 2024. Over the same time period, operational leasing is projected to grow at a CAGR of 3.9 % and financial leasing at a CAGR of 10.8 % in Russia, making the country a potential target for global fleet and leasing companies as well as local investors looking to capitalise on market opportunities. Finally, the penetration of financial leasing in PV registrations is expected to increase from 7.2% to 10.3%, while that of operational leasing is set to remain almost the same at 1.6%-1.7%.
One of the key challenges for leasing providers in Russia is the vast territory that they need to cover. This is particularly problematic for operational leasing players who struggle to provide adequate servicing coverage for their vehicles. However, the leasing market, as well as the fleet segment in Russia are expected to continue to mature and expand, particularly in and around large cities.
The LCV segment (up to 3.5 tons) of the leasing market is projected to increase due to the rising demand for this vehicle type in last-mile deliveries. In the EU25, where leasing accounts for 42.6 % of LCV registrations, operational leasing is anticipated to grow at a CAGR of 5.6 % between 2019 and 2024, with financial leasing at only 1.9 %. Russia ranks fifth, behind France, Germany, the UK, and Poland, in terms of financial leasing of LCVs with a leasing penetration rate of 28.4% in 2019. This accounts for a penetration rate of 25.5% for financial leasing and 2.9% for operational leasing which are likely to grow marginally to 27.4% and 3.3%, respectively, in 2024.
Total registrations in the medium and heavy commercial vehicles segments are estimated to increase from 80,7000 in 2019 to 82,6000 by 2024. The penetration of financial leasing stood at 68.3% and is expected to reach 76.0% by 2024, while operational leasing is much lower in comparison, with penetration rates of only 2.0% in 2019, anticipated to grow to 2.7% by 2024.
Mobility-as-a-Service and Vehicle Electrification Trends to Shape Market Future
The economic downturn has resulted in more complex taxation systems and budget cuts which, in turn, have led to fleet downsizing. This has driven Western European leasing companies to transition away from being traditional leasing companies towards becoming mobility service providers. These Mobility-as-a-Service solutions are more adaptable, with services that cover trains, public transportation, bicycles, taxis, corporate carsharing, and other modes of transportation. In essence then, fleet and leasing players are reinventing themselves as they seek to align with new consumer trends and expectations.
Meanwhile, motivational or benefit-in-kind leasing products are gaining importance in Western Europe. Employers in the UK are using salary sacrifice schemes and benefit-in-kind leasing solutions to provide vehicles as benefits. According to Frost & Sullivan research, approximately 55 % of vehicles in Western Europe are classified as being perks, but this figure is estimated to be less than 15 % in the Russian market. In the medium term, the increasing adoption rate of leasing solutions in the Russian market will set the stage for the emergence of benefit-in-kind leasing products.
Another important trend notable by its absence in the Russian market is the shift to electric vehicles. At present, annual registrations of electric vehicles number only a few hundred. However, we anticipate that in the long run, the availability of a wider range of electric vehicle model offerings will trigger greater interest in alternative powertrains. However, this trend is unlikely to have an impact on the market for another 7–10 years, underscoring the ongoing focus on educating customers (particularly corporations) about the benefits of leasing, attracting more investment in developing a good servicing network, and diversifying product portfolios with the aim of increasing the flexibility of leasing solutions.