A leasing society

12th August 2013 Posted by

Policymakers have been enthusing over the idea of a “leasing society” as one means of achieving a closed-loop economy. Consumers pay for a service as opposed to buying the product, the ownership of which remains with the manufacturer. The theory is that manufacturers would build better products if they retained responsibility for performance, consumers would benefit financially, and the environment benefits because products would last longer and not be as readily discarded.

But the television programme Your Money Their Tricks (BBC1, 24 July) offered a revealing insight into who really benefits from such an arrangement. In the case of a laptop computer (£999 if bought), monthly lease payments over two years totalled £2,000, after which an additional £300 close-out fee was charged if the consumer wished to purchase the laptop. Add in penalty fees for early release from the contract, and even if the consumer had purchased the product outright with a full warranty, the lease option hardly represents good value.

The leasing society is one policy concept where rhetoric has run ahead of reality, albeit with the best of intentions. Other than for some well-established leasing models (cars, aircraft, chemical leasing, mobile phones) the full-life cost associated with leasing everyday consumer items such as washing machines, fridges and even laptops has yet to be fully elaborated, at least to the satisfaction of the consumer. Furthermore, the full-life cost of leasing will have been built into the cost of the service paid by the lessee – the production cost of the product plus the cost of home repair, replacement, etc. So the additional insurance or product warranty paid on the product by the consumer is internalised within the cost of the lease, but with an additional margin built-in because the manufacturer bears all the risk.

Nor would leasing suit all products – for example, the difference between leasing a £25 electric kettle and a £25,000 car. The prohibitive cost of maintaining a kettle under lease will make outright buying of the product and its subsequent management at end-of-life a better economic and environmental model.

Perhaps that economic threshold has not been reached even with a laptop computer worth £999!

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