Is it more cost effective to terminate a vehicle’s contract early or should you consider reallocating it within your fleet?
What problems does early termination cause? How often do you have to consider early termination? How many vehicles per year?
Tristan Campbell, fleet adviser, Chivas Brothers: Early termination can cause several problems: cost of the early termination or reallocation; upsetting a driver by issuing a used vehicle; time working through the options and activating the desired option; and tracking damage on reallocated vehicles.
I have to consider the options on a regular basis (around 20 times a year) so, as you can imagine, it has all become second nature.
Peter Weston, fleet manager, Home Retail Group: As our fleet is funded through outright purchase rather than by lease, we don’t have an issue with early termination, as the decision of whether to dispose of a vehicle rests with us. This gives us an extra level of flexibility.
Having said that, we obviously have to consider the profitability of disposing of a vehicle early, and therefore will reallocate where appropriate. On average, we would expect to reallocate around 120-150 cars per year.
Gary Black, group fleet manager, Inspired Gaming Group We never early terminate our vehicles unless they are accident damaged beyond economic repair.
Is there a point at which it is more cost effective to pay early-termination penalty fees rather than reallocate a vehicle?
Tristan Campbell There are so many factors to be taken into account: how many potential early terminations do I have?
How many drivers do I have requiring a vehicle? Are there any new employees starting in the near future? Do I have any short-term hire cars which I could get rid of? Is the car going to be desirable to another driver? How long has the lease got left?
Every case is different, but I have only early terminated two vehicles in the past 12 months out of a potential 20.
Peter Weston The decision on whether to dispose or re-allocate a vehicle is reached on a case-by-case basis and takes into account, the age, mileage and condition of the car. This is then overlaid by the financial aspects of the position – market value versus asset value – and the “marketability” of the car.
How effective is reallocation of company vehicles?
Tristan Campbell Reallocating vehicles has saved us thousands, not only in early-termination charges, but also in daily rental charges.
In the past we were terminating vehicles one day and ordering a short-term hire vehicle the next day, but when this practice stopped, we shaved around £90,000 from our daily hire spend in just one year.
Peter Weston Broadly speaking, we have no issues with reallocation of cars – our policy is that certain types of drivers within the business would expect to be issued with a reallocated car rather than select a brand new one, so the culture of reallocation is well embedded.
Reallocated cars are given a full health check by an external supplier before being reissued, so the driver can accept the car with full confidence in its safety and reliability.
Gary Black To me, it makes perfect sense to operate a reallocation policy which makes full use of vehicles within the fleet.