Fleet News

Higher-than-forecast residuals boost leasing companies' profits

A SURVEY of the residual value forecasts made by contract hire companies three years ago illustrates why the industry is making such healthy profits today. From a basket of 30 of the most popular fleet cars, 23 have exceeded the residual values which leasing companies were predicting in August 1994.

The figures are based on the monthly Yew Tree Survey, to which contract hire companies contribute their rental rates and residual value forecasts for a selection of cars. The survey includes 32 of the top 40 contract hire companies in the UK - specifically excluding single-marque manufacturer operations - and all of the top 10.

By comparing the residual forecasts with CAP Black Book for August 1997, a picture emerges of where contract hire companies have been making windfall profits from vehicle disposal, and where they have suffered losses. The comparison with CAP Monitor is much less satisfactory because Monitor editions run from August 1 to December 31, and this five-month spread has to reflect an average significantly wider than CAP Black Book's one month relevance.

Yew Tree's weighted basket of typical fleet cars (which has a greater preponderance of mainstream models at the expense of prestige and luxury marques) reveals that contract hire companies have been exceeding their residual value forecasts by an average £440 per car.

This helps to explain recent figures in the British Vehicle Rental and Leasing Association annual survey which revealed one third of contract hire companies were making an average profit of £1,000 per vehicle over a three-year contract, and 48% over £500. The average £440 per vehicle bonus still represents a tidy sum for the profit coffers, however, and is sure to reignite the long running issue that leasing companies are charging too much.

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