An innovative buy-back deal with Mercedes-Benz has helped Sanctuary Group to reduce residuals value risks for its outright purchase van fleet.
The property maintenance company moved from a solus van contract to a dual-supply agreement with Mercedes-Benz and Volkswagen last year.
Its primary objective was to improve efficiencies by negotiating a better deal and to select vans that offered a better reliable record – Sanctuary was experiencing too much downtime with its former supplier.
The timing coincided with rapid growth in the company fleet, which also includes 350 cars.
The business case was put together by group fleet manager Cliff Lewis, together with Sanctuary’s procurement team.
Lewis joined the business 18 months ago when the fleet was a much smaller operation and management of the vehicles was overseen by a procurement manager and a fleet co-ordinator.
He was tasked with advancing fleet management across the business, as a majority of the company’s new vehicles were to be used by its new and expanding maintenance arm, Sanctuary Maintenance Contractors.
Lewis’s first big initiative was to assess vehicle partners.
The decision to switch to Mercedes-Benz and Volkswagen was based on wholelife cost calculations.
“We drafted a business case and presented it to the managing director of Sanctuary Maintenance, giving him an overview of vehicle spend,” says Lewis. “We also did a tendering exercise looking at the wholelife costs of LCVs.”
He was keen to spread the van fleet across two manufacturers rather than be restricted to a sole supply arrangement.
Consequently, the Mercedes-Benz Vito long wheelbase van will eventually make up the majority of the fleet, supplemented by the smaller Mercedes-Benz Citan and Volkswagen Caddy.
As well as the cost savings, the Mercedes-Benz rental-mirroring buy-back agreement enables Lewis to reduce the residual value risk.
“As part of the contract with Mercedes-Benz, it will buy the vans back from the group in five years,” he says.
“I think it is good to have a guaranteed price of what the van will be worth and reduce the RV risk. That was one of the determining factors of going with Mercedes-Benz.”
To receive the full buy-back price, Sanctuary will need to meet certain conditions including ensuring its vans stick to an agreed mileage level.
Mercedes-Benz has also factored in a level of damage based on the business sector and work profile and will inspect the vans during regular review meetings.
Sanctuary’s fleet has expanded rapidly over the past three years from 200 vehicles to 850 – 500 vans and 350 company cars.
The vans run on a five-year/100,000 replacement cycle and cars on three-year/60,000.