Risk Management in Used Car Leasing
2018-08-21 14:00 Tuesday
Due to the substantial growth in used car sales over the past two years, used car leasing has become a promising sector with signs of taking off. In light of this high growth, leasing enterprises should emphasize risk management, to protect themselves against the excesses of an ever-changing market.
Industry insiders have noted the importance of risk control for used car leasing, citing share price, customer identification and residual value, as key issues that lessors should pay attention to.
Vehicle evaluation is perhaps the top concern for used car leasing enterprises, and a proper evaluation system is integral to a successful business model. Major auto leasing enterprises such as Pingan Leasing are working closely with outside organizations and insurers to set up a comprehensive evaluation system that guarantees fair and reliable used car quality.
Customer identification risks are also present for used car lessors. Collaboration between auto leasing enterprises and independent third-party credit bureaus can help with obtaining lessee car loan and credit histories, minimizing the possibility of vehicle property right disputes or loan defaults.
Another concern relates to the residual values of used cars. During the car leasing process, the lessor still retains ownership of the car, and the consumer only has the right to use it. Thus, leasing enterprises undertake substantial risk from fluctuations to the residual value, as cars can be purchased, returned or reused once the lease expires. Residual values are closely linked with profits, therefore an effective system for evaluating residual value is rightly regarded as an essential component of a successful car leasing enterprises
Due to the deficiencies in the residual value management system in China, domestic leasing enterprises should follow the example of successful lessors in mature markets, when designing and implementing risk management procedures.