Fleet News

Avoid the end-of-contract sting in the tail

Leasing companies are often accused of using end-of-contract damage charges as a ‘profit centre’. Not so, say the UK’s three largest leasing companies. Andrew Ryan compares answers to fleets' key concerns

End-of-contract damage recharges are “the big-gest bane of my life”, a fleet manager with 25 years’ experience has told Fleet News – and it is a sentiment shared by many of his counterparts.

“Judging what is fair wear and tear is not an exact science and is open to interpretation,” says Nigel Rowden, fleet manager at ISS. “Leasing companies need to be more consistent and realistic.”

Other fleet manager concerns include interpretation of BVRLA fair wear and tear rules, the differing belief that damage recharges are used as a ‘profit centre’, and the fact that not all the money is used to repair vehicles before they are sold.

Here, we put a number of fleet managers’ concerns and questions to the UK’s three largest leasing companies.

What steps can fleets take to minimise end-of-contract damage recharges while negotiating a contract for leasing vehicles?

Andy Hartley, commercial director at Lex Autolease: A discussion of end-of-contract damage recharges should form a central part of any negotiations. Both the business and the leasing company should be fully aware of the other’s expectations and all end-of-contract processes should be clearly defined before any agreement is signed. Fleet policies can be designed strategically so that company car drivers are liable for all or part of any end-of-contract charges incurred. Putting the onus on employees goes a long way to encourage them to take better care of their vehicle during its lease. 

Additionally, restricting the vehicle specification and options available to drivers can have a significant impact on reducing the likelihood of end-of-contract charges. Large alloy wheels, for example, have a greater chance of being damaged than standard-fit wheels, and are expensive to repair or replace, sometimes even necessitating a new tyre. Prohibiting free rein on vehicle choice and add-ons can drastically reduce the potential for damage to occur.

What can fleets do during a vehicle’s time with that company to minimise end-of-contract damage recharges?

AH: Most simply, businesses can complete all repairs themselves, or through their accident management provider, prior to returning the vehicle to the fleet company. This places the customer in full control, though any potential impact on insurance costs must be balanced against savings made by avoiding end-of-contract costs.

Julia Thirtle-Watts, general manager, remarketing operations at LeasePlan UK: We advise fleet managers and drivers to appraise vehicle condition in the months before returning a vehicle. This check-up gives fleet managers the opportunity to control and manage any possible end-of-contract damage charges, in line with their agreed contract.

Steve Shaw, head of remarketing and logistics at Alphabet: First and foremost, fleets need to uphold the manufacturer’s servicing intervals. If those aren’t maintained, then the recharge is potentially hundreds of pounds straightaway. Drivers should also be cautious, particularly when parking. A lot of damage recharges are from scuffs and dents when parking, or when a vehicle is left.

What is the source of the most common misunderstandings over end-of-contract damage recharges?

AH: There can be confusion and misunderstanding around pricing structures for different types of damage and where charges have been incurred. At Lex Autolease, we launched iPad technology at the end of 2014 to simplify the de-hire process for our customers. We also introduced a simplified pricing matrix which details all charges by vehicle size and damage type, which helps customers to make informed decisions about whether to undertake repairs ahead of returning a vehicle. As with all aspects of fleet management, clarity of communication between drivers, employers and fleet companies is crucial.

SS: We find that the biggest area of confusion among fleets is understanding the extent of damage: one person’s ‘polish out’ is another person’s ‘repaint the side’. With some of the colours and paint finishes available now, it is no longer the case that you can just touch up a scratch and it’ll be fine, so we either have to repair it or we have to lose money on the vehicle when it comes to reselling it. If you’re unsure about any damage, speak to your leasing company.

How do you decide what damage is repaired before a vehicle is sold? Can you understand fleets’ frustration when a damage recharge is not used to repair a vehicle?

AH: Lex Autolease does not repair vehicles that are being returned to the used car market. Most ex-fleet vehicles are returned to auction rather than directly to retail, and the majority of people who bid on ex-fleet vehicles are independent traders who will choose the level of refurbishment for vehicles and complete repairs themselves cost-effectively. Taking this route quickly turns a vehicle into cash for a leasing company, and the lower value commanded by a non-repaired ex-fleet vehicle sold at auction is more than offset by the speedy sale and absence of repair costs that a leasing company might normally incur. However, the vehicle will still deliver lower sales proceeds when returned in a damaged condition than if it had been returned in a condition in accordance with the BVRLA’s fair wear and tear guidelines, with the damage recharges levied being used to compensate for this loss in value.

SS: Fleets don’t always see how much damage costs to repair. Our auction guys are well trained and they know what they’ve got to look for: it tends to be the extent and location of the damage which determines whether a repair is carried out. I completely understand customers’ frustrations that we might not always be working in their favour, but we always are. 

Residual values can rise or fall between the point when they are set at the beginning of the contract to when a vehicle is defleeted. Many fleets feel that end-of-contract charges are increased to make up any shortfall, referring to them as a ‘profit centre’. Does this happen?

AH: Such behaviour from a leasing business would be completely inappropriate. Lex Autolease’s end-of-contract inspection technology is available to empower customers to see exactly what damage is being charged for, and any associated costs will have been clearly outlined from the contract outset. Our damage charges are levied solely in relation to the condition of vehicles returned and prevailing used market conditions have no impact upon our damage recharges. 

JTW: LeasePlan doesn’t want to administer end-of-contract charges if they can be avoided – it’s not in anyone’s interest to cause opportunity for dispute, even if the charges are in accordance with the agreed contract.

SS: This is absolutely not the case. We are not in it to make a revenue stream from damage recharge at all.

What is your top tip to fleets who want to reduce end-of-contract damage charges?

AH: A missing spare set of keys can incur penalties of up to £500 once the vehicle’s security system has to be reset, yet it is one of the most common causes of end-of-contract charges we encounter. Providing drivers with a standard checklist of items that come with the vehicle but may be removed and stored or mislaid prior to their return, such as keys, spare wheels, parcel shelves and log books is a simple yet effective way for fleets to reduce unnecessary charges.

JTW: Something as simple as returning both the master key and spare key can save significant sums in end-of-contract-charges. Some replacement keys can cost upwards of £200 due to ever more sophisticated security systems. When returning electric vehicles, return the charging cable as this can cost up to £1,000 to replace.

SS: Be honest at the start of the contract as to the usage of the vehicle. Also, always go round the car a couple of days before the vehicle is collected and, if there is any particular issue, contact the leasing company, as we are best placed to give you an opinion on it. Make sure everything is returned that came with the car, such as spare keys, any sat-nav discs or SD cards, service records and locking wheel nuts.

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  • bob the engineer - 27/10/2015 18:00

    I don't think the BVRLA’s fair wear and tear guidelines have kept pace with the increase in lease lengths and return mileages, soft water based paints used on cars, the amount of windscreen chipping gravel around due to cheap surface repairs and still pretty much expect the car back in an unrealistically high standard, its crazy but you have to have a 100,000 vehicles returned to almost as new to be sure of escaping charges and it costs companies a fortune. My last return didn't have a mark on it from my doing but from stone chips, car park door dings, slight windscreen chips.. which cost our insurers hundreds to put right. Its a right faff, that's the only good thing with longer leases is you don't have to go through it all so often - nothing less fun than driving around for 2 weeks in a logo'd 1.0 Corsa whilst they tart up your car just for it to go to auction.

  • Andy Baker - 28/10/2015 11:25

    Having worked in the contract Hire and leasing industry for 30years unless you take pictures yourself of the vehicles being returned you are leaving yourself open to these charges when the vehicle does not reach its RV. All fleet operators and small customers must be advised to take photos to avoid the 'RV shortfall' tax

  • Gareth Turner - 14/11/2015 21:03

    Having been involved in setting residual values and the inspection of assets for 20 years now, I would agree with Andy Hartley that a policy of an “RV shortfall tax” would be totally inappropriate and I don’t believe that any current organisation would do this. My experience is in the Public Sector Leasing area, and a few years ago there was a company that appeared to have a policy of very high residual values and zero tolerance on return conditions. This worked initially because the Local Authorities saw low rentals. However after the cycle had been completed once they realised the importance of sensible achievable residual values and the realistic interpretation of the return conditions, and returned to their regular funders. With regard to the issue of charges not being used to repair vehicles, leasing companies could be up front with the customer and state a cost were they to repair the vehicle compared to the cost to compensate them for the loss in value at the auction. This should certainly be less in the vast majority of cases. At the end of the day it should be about treating the customer fairly, but the customer has to take responsibility for the condition of the asset.

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