Fleet News

Special feature: Don’t let finance tie you down

I WOULD bet that van leasing is never in the top 10 when it comes to dinner party conversations. In fact, it probably isn’t in the top 10 when it comes to dinner queue conversations at work either.

But use a bit of spin and change the conversation to: ‘How I saved my company tens of thousands of pounds and got all the credit’ and it suddenly becomes rather interesting, doesn’t it? So, the challenge over the next three pages is to turn the subject of van leasing from dinner party bore to boardroom hero.

As money talks in the corridors of power, it is best to start there.

Leasing is simple. You pay a fixed monthly sum for a set period of time for your vehicles and provided you take care of your fleet – a challenge in itself, I know – you can guarantee how much the fleet will cost you for however long you have leased it.

And should used van prices plummet while you have the vehicles, it isn’t your problem, as the leasing company takes all the risk at selling time.

If you include maintenance costs with the lease that is even better, because the leasing firm will cover any maintenance work needed, within reason, all for a standard cost. And it gets better. Because leasing companies buy lots of vans, they can get them cheaper and pass on the cost benefits – well, some of them do.

And then there is the killer fact – if you currently outright purchase your fleet, you can sell it to a leasing company and start leasing it back straight away, then use the cash injection to boost your business.

With a few provisos, firms then have a risk-free fleet, with the hassle dealt with by someone else, who also provides a call centre facility for drivers, all for a set monthly fee. Simplicity itself.

At the risk of boredom setting in, let me explain briefly how leasing works. The leasing company buys the vehicle. It then works out how much it will be worth as it gets older and its mileage increases.

When you ask for a lease, you say how long you want a vehicle and how many miles it is expected to cover in its fleet lifetime.

The leasing company predicts just how much the vehicle will cost for that time. The cost is shared equally over the period (so you don’t suffer the effects of massive depreciation loss from new in the first few months) and then lending costs and contingencies, along with predicted maintenance costs if you have asked for them to be covered, are added. And that is your monthly fee.

It sounds simple and compared to outright purchase it is a no-brainer to take depreciating assets off your balance sheet and hand them to someone else.

But it pays to be vigilant. If vehicles are damaged beyond set ‘wear and tear’ limits, then you have to pay for repairs (see panel on next page).

And if you go over the contracted mileage without renegotiating the contract, then you also have to pay an added fee for every mile you travel.

However, with effective management, it works extremely well and could save your company thousands of pounds – and that’s worth discussing over dinner any day.

To get started, FNN has plenty of valuable information.

It is also worth speaking to some of the key suppliers in the market, such as LeasePlan, Lloyds TSB autolease, Lex Vehicle Leasing, Lombard, ALD Automotive and Hitachi Capital.

For many fleets which already lease cars, it will be reassuring to know there is very little difference between the car and van offerings, with the latter merely a slightly amended version of the former.

However, as you will know, vans are very different animals, so make sure the company you are using knows its SWB from its LWB.

Steve Crawshaw, LCV manager for LeasePlan, said: ‘Being commercial vehicles, issues such as downtime and being fit for purpose are of far more relevance to the van sector – and the leasing product has to take this into account.

‘It’s not just about the cheapest rental, it’s about the most appropriate make and model, the right equipment and build and the support that will keep it on the road.

‘Even a couple of hours of downtime can cost an operator hundreds of pounds. The main thing to understand is that a leasing package designed for perk cars is not going to work for workhorse commercial vehicles that need to justify their cost with every mile they travel.’

LeasePlan has aimed to solve this dilemma by launching an LCV-specific van product, LCV-Link. Crawshaw said: ‘It begins with a full fleet evaluation of the customer’s needs and current fleet. Once established, vehicles would be recommended along with any appropriate additional van specific services. These can include vehicle damage inspections, monthly or quarterly mechanical inspections to supplement routine servicing, advanced LCV breakdown and rescue facilities, LCV accident management and commercial vehicle driver training.’

Leasing expert answers all your funding queries

LEASEPLAN is one of the largest leasing companies in the country, with more than 100,000 vehicles. Steve Crawshaw, LCV manager, answers some of the key questions asked about leasing.

  • ARE more companies using leasing now than outright purchase?

    OUTRIGHT purchase, bank loans and hire purchase still remain the favourite funding methods among many van operators, probably because most are smaller businesses that might not fully understand the benefits of leasing.

    However, more and more are turning towards contract hire due to the strong discounts available and the possibility of removing the assets from balance sheets.

    There is also strong interest from companies wishing to outsource the whole issue rather than employ someone in-house to manage their vans. One area of commonality between car and van leasing is that it reduces the administrative hassle.

  • HOW much should I expect to pay for a leased van per month?

    HERE are three examples of rentals based on 48 months @ 20,000 miles per year inclusive of maintenance:

  • Renault Kangoo 1.5 dCi SL17: £213.06 per month ex-VAT

  • Volkswagen Transporter T28 1.9 85bhp SWB: £261.72 per month ex-VAT

  • Mercedes Sprinter 311 MWB: £413.25 per month ex-VAT

    However, as with all vehicle leasing, it’s vital to understand that the monthly rental is only part of the jigsaw. The cost of the lease is important, but so is the level of support, the quality of the fleet management systems and the availability of expert consultancy.

  • HOW specific can you be about the type of van you want to lease?

    THE more specific, the better. Vans come in all shapes and sizes and there is a wealth of equipment and fit-outs available. It’s disturbingly easy to get it wrong – to order a particular van because it seems cheapest on the day or it’s ‘the one you’ve always bought’.

    Fleets should be looking for a consultancy approach, so that they can review options with an expert to determine the most suitable make and model for their needs.

    Most vehicles are then converted or modified to be bespoke for individual customer requirements.

  • WHAT is the best contract term length to opt for?

    LCVs tend to be taken over longer terms than cars, although this is very much dependent on the anticipated mileage that will be covered. For example, a high proportion of LeasePlan vehicles are taken on four-year contracts.

    A longer contract term will also spread the cost of any ancillary equipment that has been added to the vehicle. Deciding on the most appropriate contract period should form part of the initial scoping discussions between buyer and supplier.

  • IS a broker better when it comes to van leasing?

    BROKERS and leasing companies often deal with different types of customer requirements. Our experience is that brokers tend to deal with smaller businesses which need vans for their operations right now, so the focus is more likely to be on immediate availability and the need for an inexpensive vehicle.

    A leasing company may focus on the wholelife cost for the vehicle, the most suitable vehicle for the customer and options such as fuel cards. Leasing firms come into their own when there is a need for more detailed reporting and a nationwide service.

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