Is leasing the future for fleets? The Fleet Voice Column.
Wednesday 18 August 2010: The Fleet Voice Column.
To buy or not to buy, that is the question. Well, it is if you’re a fleet manager trying to balance the books and get the best deal for your company and users.
Until recently, the tendency in the UK has been for companies to own their fleets. According to leasing specialist Equalease, many firms in Britain have viewed owning their fleet as a statement of corporate confidence.
However, the recession has taken its toll on this confidence as businesses have less stomach to have capital tied up in a depreciating asset. Paul Ashton, managing director of Equalease, says: ‘The fact is that in late 2010 and for the foreseeable future, that kind of confidence is in short supply. Instead, businesses are looking to make decisions that minimise their initial outlay, reduce their exposure to residual risk and outsource management of maintenance. Leasing is the answer.’
He continues: ‘Up until the recession, there was a fairly even split between leasing and outright purchase for company car acquisition. However, the events of the last few years are likely to mean that many companies are unlikely to return to buying their own vehicles and will instead turn to leasing in the future.’
Ashton reckons greater flexibility within the leasing sector will tempt company fleet managers to look at alternatives to outright ownership. ‘One of the main reasons companies have avoided leasing in the past is because of the lease lengths on offer – usually three or four years,’ explains Ashton. ‘That is quite a lengthy commitment for a business that is very concerned about what the next six months in the current climate.
‘The development of short term leasing of periods from 3-12 months means that employers can gain the key benefits of leasing without the long term obligation, and removes another barrier to its adoption.’
Other than the financial implication of having money invested in a company car when you buy, there are the associated running costs of insurance, tax and maintenance. These can add up to a considerable amount over a typical three-year, 60,000-mile cycle. Factor in the depreciation even the most desirable of company cars will suffer in that time, allowing for the user looking after the car fastidiously, and there’s a hefty cash penalty for those who choose to own their fleet.
The downside of leasing is a company never owns the car, so come the end of the lease period it is simply handed back with all of the money spent on the hire contract gone. It’s a very similar argument to buying or renting a property, and we all know how much us Brits love bricks and mortar.
However, our cars are not castles and don’t go up in value in the long term, which is where leasing is set to become the dominant partner in the way company cars and vehicles are funded.
- Over 100,000 contract hire and leasing deals at ContractHireAndLeasing.com
With little upfront outlay of capital and a fixed monthly fee that usually includes everything but the fuel in the tank, it’s a hassle-free way to run a car. With the expansion of short-term leases, it also means company users can pick and choose their cars on a regular basis. Sports car for summer and an SUV for winter anyone?
It may be a gauche side benefit, particularly in these parsimonious and cost-conscious times, but leasing can also offer the business user the opportunity to drive a car that might otherwise be out of his or her price range or not even appear on their company car lease. This is because a monthly payment on a lease vehicle is generally lower than the cost of financing full ownership.
Even so, most business users will be looking closely at the carbon dioxide emissions and fuel economy figures to get the best deal when it comes to handing over money to the tax man and the petrol companies. Again, short term leases also allow more flexibility to fleet managers, so if their firm seems to be weathering the current financial storm better than expected, it could be possible to offer their users a reward in the shape of a higher spec company car. Should belts need tightening, a short term lease is easier to bail out of.
It must be remembered that nothing in this life is free and short-term leases usually come with a higher monthly payment than a lease deal over three or four years. This is because the lease company has to make its living and is swapping long-term deals for added flexibility.
So, will the growth in short-term leases see UK-based firms abandoning their more traditional methods of populating a company car fleet? If your average annual mileage isn’t the sort to make astronauts suck their breath in surprise, it seems inevitable given the seismic shifts that have been forced upon us all by the recession.
We’ve suffered the slings and arrows of outrageous fortune, so now is the time to take arms against them and by opposing them, end them. Okay, so Shakespeare might not hold all of the answers to our current woes, but at least fleet managers have more options at their disposal and that’s got to be a good thing.
Alisdair Suttie
See also:
1 Comment
As John Paul Getty, American oil billionaire, wisely said: If it appreciates BUY IT, if it depreciates LEASE IT! Good advice from someone in a position to give such advice.
Dave
August 18, 2010, 9:56 pm.
