Smartgroup (ASX:SIQ) provides salary packaging services along with novated leases and fleet management services. Salary packaging enables employers to help their employees to maximise their take-home pay and gain access to other benefits. This helps them attract and retain talent. It is particularly relevant in the not-for-profit sector such as government, education, healthcare and charities where employees can have certain expenses paid out of their pre-tax salary. The other big component of salary packaging is the inclusion of a vehicle. During 2023 the number of salary packages provided increased by 4%.
Which leads into the other major components of Smartgroup’s business, novated leases and fleet management services. Novated leases are an attractive benefit offered by employers to their staff. It enables employees to acquire the car of their choice, whilst accessing tax advantages and lowering the overall cost of car ownership. Should the employee leave, they are responsible for the lease, not the employer.
Over the last 12 months the leasing side of the business has experienced strong growth. There was a 21% increase in new lease vehicle orders and a 20% increase in lease settlements. In addition lease yields increased by 9% due to supply chain renegotiations, increased volumes of electric vehicles (EV) and a higher proportion of leases being for new cars and therefore of higher value.
Changes to fringe benefits tax for electric and low emission vehicles have made it far more attractive to lease these types of cars. With the FBT exemption, a $66,000 Tesla effectively costs about the same to own and operate as a $40,000 Mazda. This has made EVs a far more competitive option.
In 2023 battery EVs made up 7.2% of total new car sales which was more than double the 3.1% in 2002. But with the tax benefits, the impact in the leasing industry was turbo charged (not a great metaphor as EVs don’t have turbos). For Smartgroup, EVs made up 36% of all new car novated lease orders in 2023. It was 41% in the second half, as the trend accelerated. As the graph below shows, the corporate sector led the way with over 50% of orders in the second half for EVs, with government clients close behind. Education, hospital and not for profit clients are also increasingly choosing EVs as more affordable options become available.
