how Skoda managed to lower the rent on its new cars

A cheaper new car? This is of course a misnomer, but the phenomenon is rarely enough to be noticed … Skoda announces a reduction in the rent of its new cars on lease with option to buy (LOA). A really good deal, as car sales in this format are constantly rising.

The good thing is that the price of new property does not change, on the contrary, it even tends to rise … But how the hell do we arrive at a fall in rent in the current inflation context?

LOA, an equation with an unknown

It is necessary to understand the mechanism of the LOA, which consists in abandoning the use of a new vehicle on very specific terms (time, mileage, etc.) against a rental. To do this, the manufacturers have the acquisition of the vehicle supported by a banking structure which recovers the vehicle at the end of the LOA contract to finally sell it on the used market. The whole equation lies between the purchase price and its used resale price. The lower it is, the more money the bank loses … The higher the resale price, the more profitable the bank is, which lowers the price of the rent.

It is precisely this resale price (or residual value in the jargon) that has enabled Skoda to offer its bestsellers (Karoq, Kodiaq, Enyaq and Superb) at cheaper rents. The Czech brand has developed its reputation sufficiently to increase demand in the second-hand market, supporting resale prices. And again … Before the rental price was lowered, the increase in the residual value first absorbed the increase in interest rates and even the increase in the catalog prices of the same vehicles.

“We have seen a very strong increase in our residual value over the last three quarters,” confirms Dorothée Bonassies, Director of Skoda France. “Twelve months after its registration, a 5,000 km Kodiaq is listed at the price of new, it’s incredible”she excites.

Lack of semiconductors pushes rents down

This phenomenon can be partly explained by the lack of semiconductors, which deprive Skoda of part of its potential sales. Buyers who normally position themselves in the new market have thus had to switch to the second-hand market, which tends to drive up the residual value. For Dorothée Bonassies, this explanation takes nothing away from the virtuous dynamics that structure the brand.

According to her, the Skoda brand has crossed thresholds in terms of fame in public opinion, the result of a long process of repositioning the brand since 2015 and the launch of Superb. The arrival of this grand tourer had then unveiled a strategy of moving upmarket, whether it was on the perceived finishes or on the segments (the catalog has been greatly expanded in SUVs). This strategy has been characterized by an impressive growth in sales volume, which has flown from record to record since 2012 to peak with 1.2 million cars in 2019. But also by a sharp increase in the average purchase price from approx. 23,000 euros in 2015 to 33,000 euros this year in France. “Our average purchase price is now higher than for Peugeot in France”emphasizes a spokesman for Skoda.

To get there, several mechanics were put to work. First, Skoda sales are much more focused on SUVs … where city cars still make up a large portion of Peugeot’s sales. The brand then launched a lengthy revision of its distribution channels by significantly reducing its so-called tactical sales and to short-term rental companies. These sales have a negative effect on the residual values.

Strong European dynamics around the brand

Finally, the Skoda brand is booming in almost all European markets, consolidating demand in the second-hand market. And not just in the former Eastern Bloc countries. In Austria, the Volkswagen Group’s subsidiary is the second brand in the country with a market share of 10%. It is also the first brand to be imported into Germany. It even points to 4th place in the very premium Swiss market with 7% market share. It is only in France that Skoda is behind with 1.9% market share (15th place), while it is the eighth brand in Europe with 5% market share. Dorothée Bonassies believes that the 2% threshold is within reach this year, which is a necessity to reach the 3% target by 2025. A huge challenge, while France remains the privileged ground for the main competitors from Skoda, Citroën and Renault, even extremely offensive.