Passenger Vehicle leasing is a widely known concept which has steadily grown over the years in Indian market. At the same time, Commercial Vehicle leasing has faced its own set of headwinds. To name a few, domination of micro fleet operators (2 – 5 trucks) resulting in relatively low or nil importance to legal and tax benefits coupled with marketing and recovery bottlenecks.

With technological disruption happening across industries, is it the right time to re-assess if bottlenecks that didn’t let CV leasing take off earlier be overcome now?

Commercial Vehicle lease is like a loan with certain exceptions:

• Lease amount that you pay monthly will be treated as expense in the books of lessee, thus reducing overall tax implications.
• No down payment required (Remember the time when you had to raise down payment for buying your first house!)
• At the end of the lease period, lessee can buy the CV at it’s residual value.

Benefits seem compelling for a country like India where most of the truck operators are “Micro” – Pause! Is this also the reason that CV leasing didn’t take off earlier. Probably…

• Majority of the micro operators are not bothered about tax implications
• Leasing requires a bit of education and marketing. It’s not a FMCG product which can be bought off the shelf
• Recovery of the lease amount becomes a bottleneck, specially from operators who haven’t been doing very well in business.

In the developed countries, CV leasing has grown from 4% market share in the 70s, to over 30% today. In the Indian context, future of CV leasing may be at tipping point today.

Leasing companies can very well use technology for fleet management and keeping an indirect eye on the key performance indicators. This integrated with payment patterns will offer the ability to regularly assess risks associated with recovery of lease amount.

Leasing companies will be required to play the role of consolidator with support of micro fleet operators. Micro operators will indirectly need to work as managers to run on-ground transportation operations to ensure timely lease payment and earn their living. Further, with an incentive and penalty “carrot and stick” clause, behaviour can be monitored, giving them a chance to buy the CV at the residual value.

Leasing company can also guide micro operators on Futuristic Movement which includes freight rates, volumes, turnaround times and cargo availability. There can be other benefits as well in terms of maintenance costs, insurance, safety, training, fuel management and accident management.

Technology is the key differentiator and the common thread which was not available earlier and is now everywhere.

To begin with, early adopters to the leasing model can definitely be logistics companies which currently own large fleets such as Delhi Assam Roadways or VRL Logistics. For them, a mix of fleet with lease and owned will definitely make a strong financial and commercial case. May be at the back of these early adopters, we shall witness entry of large leasing companies such as Unicredit, BNP Paribas leasing or ING Lease. It’s for us to wait and watch!

Happy to have views of industry at large on the topic above!

Join us at India’s leading Commercial Vehicle platform: Commercial Vehicle Forum 2016 (http://cvforum.in/) on 24th November 2016 at The Westin – Chennai where more of such trends will be discussed by industry experts.