Companies looking to contract hire their fleet of vehicles need to do their homework before signing on the dotted line, as the wrong choice could cost them thousands of pounds.
While all contract hire companies are operating in a free market economy, the difference in monthly rates they charge can be huge – Fleet News research has found a difference of £42 a month on the rate of a Ford Fiesta.
This becomes even more surprising when you consider that the vehicle in question can cost from as little as £235 a month on a contract hire deal.
The reason for the differences is down to a number of factors. Firstly, the contract hire companies all have different deals with the car manufacturers – generally, the ones buying in the biggest bulk will secure the largest discounts.
Each of the contract hire companies will also set varying residual value forecasts for each model.
These figures are based on data from the price guides but also from their own experience of defleeting the vehicles, and its own market analysis.
According to research from fleet consultancy Fleet Operations, this residual value difference can be up to £3,000 on identical models from different companies.
And just as private individuals have varying interest levels on their savings and mortgage repayment rates, so do the contract hire companies.
Fleet Operations’s research has found that interest rates being paid by leasing companies to finance their vehicle fleets vary dramatically – from under 4% to more than 8% – and this has a knock-on impact on the leasing rate.
The consultancy’s managing director, Ross Jackson, says: “The Bank of England might have set an all-time low interest rate of 0.5%, but such rates are not being reflected in monthly rentals.”
Factor in differing SMR (servicing, maintenance and repair) costs, and varying profit margins built-in to the deals by the leasing companies, and the potential disparity in monthly rentals for the same vehicle is huge.
And human error can also play a part, with mistakes almost inevitable when processing tens of thousands of vehicles – CAP data shows there are 6,436 separate new cars for sale, and this excludes the added complexity of optional extras.
Jackson adds: “This should act as a wake-up call to fleets, which must conduct a thorough due diligence review of their leasing suppliers and examine exactly what numbers are included in each calculation.
“We continuously track the market on behalf of our customers, but there is much apathy about doing so from many fleets.
“A monthly contract hire rate from a leasing company should not simply be accepted at face value.”
See if you can find a great price for your business and compare contract hire with fleet news today.