During the three years to 2017, the price of fleet vehicle leasing has been rising at an estimated annualized rate of 1.1%. Prices have grown primarily as a result of recent demand growth.
During the past three years, demand for fleet vehicle leasing has been growing due to general economic recovery. For example, the number of businesses, including wholesalers, manufacturers, retailers and other businesses that require vehicles for operations has increased. Additionally, growth in total trade value indicates that more leased trucks have been required to transport goods. Investment by local and state governments, which are key buyers of fleet vehicle leasing services, has also contributed marginally to demand increases. Suppliers have responded to rising demand by increasing the monthly payments that buyers are required to make for the vehicles they lease.
Price growth is also due in part to increases in supplier depreciation costs. During the past three years, the price of new cars has been rising slowly, which they have passed to buyers in the form of higher lease prices. Finally, market share concentration has risen. In turn, top suppliers have been subject to less competitive pressure, allowing them to raise their prices without fear of losing business.
However, price increases have been mitigated somewhat by a decline in corporate profit. Corporate profit indicates the amount of capital that businesses have to spend on transportation costs, including fleet leasing. Because many industries have struggled to recover from the recession, budgets have contracted and reduced demand for vehicle leases in many cases. Thus, smaller suppliers have largely kept their prices competitive, preventing them from increasing prices at a faster rate.
Moreover, prices have exhibited low volatility, allowing buyers to accurately budget for future fleet vehicle leasing expenditures. Buyers benefit from steady pricing because it reduces the need to lock in rates through long-term leases, giving them greater flexibility in determining their optimal lease length.
During the three years to 2020, the price of fleet vehicle leasing is forecast to increase at an annualized rate of 1.4%.
Higher prices are anticipated to follow strengthening demand stemming from further economic recovery. Namely, corporate profit is expected to return to growth, which will enable businesses to spend more on fleet services. Additionally, continued growth in the number of businesses will boost the size of suppliers' potential customer base. In an effort to reduce risk and free up money for other essential business operations, many businesses with vehicle fleets will continue to choose to lease rather than purchase vehicles, thereby lifting demand for market services. Additionally, total trade value will grow at a heightened rate compared with the past three years, further raising demand and pressuring market prices upward.
However, several factors will continue to limit price growth somewhat. For instance, local and state government investment is expected to remain nearly stagnant in the three years to 2020, reducing demand growth from this buying segment. Additionally, substantial competition among all but the largest market suppliers will prevent prices from growing too quickly, because lessors keep prices low to avoid losing out on market share. Moreover, suppliers' wage costs are expected to remain relatively stable, further helping to keep prices from growing too quickly.
Additionally, low volatility in market prices will continue to aid buyers by allowing them to forecast their future fleet vehicle expenses and select the lease length that best fits their needs.