Case study: DFS
High street furniture retailer DFS moved to contract purchase two years ago as a consequence of switching its car fleet from an in-house management operation to an outsource arrangement with Hitachi Capital Vehicle Solutions.
Privately-owned DFS, which has a 420-strong car fleet, reports its profitability in EBITDA (earnings before interest, income taxes, depreciation and amortisation) and therefore purchasing vehicles is the most financially astute accounting mechanism for the business.
Opting for contract hire would impact on the company’s profitability with costs hitting the bottom line.
Andrew Stephenson, the company’s HR director, says: “Having decided to outsource our fleet and become more efficient by basing choice on wholelife costs and introducing maintenance management, it was then a case of deciding how to fund the vehicles.
“We had always bought our cars so it made sense to continue to use a form of purchase for accounting consistency in terms of the company balance sheet and without any impact on profitability.”
The core fleet is a based on a triple-badge Audi, BMW and Vauxhall option for drivers with senior management having an open choice.
Cars are operated on a four-year/100,000-mile cycle with Hitachi disposing of the vehicles at the end of their contracts and targeted on achieving pre-set residual values.
Case study: Travis Perkins
The Travis Perkins Group buys more than 1,500 company cars via its own internal leasing company and leases them to the business net of any profit.
Fleet director Graham Bellman calculates that the group derives a 10% cost saving compared with external leasing, although the company continuously reviews all options.
Available finance coupled with vehicle reallocation and replacement cycle flexibility are key reasons behind the decision with core Ford and Volkswagen models typically run over four years/100,000 miles and executive grade cars over five years/120,000 miles.
Highlighting that there is a role for contract hire within the Travis Perkins Group business, the company continues to contract hire a
subsidiary’s fleet of approximately 800 cars via two providers, although replacement cycles have extended from 43 months/60,000 miles to 48 months/80,000 miles since acquisition.
Bellman says: “There is a place for leasing companies, but for the bulk of our fleet we use our own funds.”
Alastair Kendrick - 02/01/2014 13:18
Sorry but depending on the value of the car being leased and its CO2 emissions there could be clear advantages of leasing a car on contract purchase to contract hire.