Fleet News

Concerns rise over contract hire credit

Some of the country’s biggest contract hire companies are becoming increasingly concerned as they find it tougher to get credit.

A survey of 40 companies listed in the FN50 found that 95.6% of respondents confirmed that the credit crisis was already impacting on their sector and 87% said it was impacting directly on their business.

One respondent said: “The industry is clearly suffering because of lack of available funds, increasing cost of funds, etc,” while another added: “The major banks have reduced their lending across the board. Banks seem to be demanding ever higher margins for lending to us.”

The contract hire industry’s problems stem from the fact that its credit suppliers are reducing their willingness to lend.

And those that will lend are reducing their new business activity, focusing on the most creditworthy customers and charging higher interest rates.

Contract hire companies are often having to pass increased interest rate costs onto their customers. 

However, it is not all bad news. “The rate increases passed on by the contract hire sector have been lower because our members are able to use capital allowances to keep the funding rate lower than other forms of finance,” explained John Lewis, of the British Vehicle Rental and Leasing Association.

However, as Colin Tourick, of Colin Tourick & Associates, which carried out the survey, said: “The results are unequivocal – most who commented said higher interest rates had resulted in higher rentals, and that their customers have not welcomed increased rentals at a time when some are feeling the effects of the economic slowdown.”

The slowdown is also making it harder for contract hire companies to sell used vehicles quickly, which is imperative to avoid additional stocking costs.

And where their ex-rental and fleet vehicles are selling, they are achieving well below CAP residual forecasts.

The latest data from vehicle auctioneer BCA shows that values in the fleet and lease sectors fell again in May. 

“Average performance against CAP Clean continued to fall in most sectors,” said BCA’s Pulse report.

As a result, the percentage achieved against CAP by fleet and lease stock fell for the second month running from 94.4% to 93.1%.

“Retail conditions are being reported as very tough, with some commentators forecasting that conditions could even get tougher before they get better,” said BCA communications director Tony Gannon.

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