Continuing challenging economic conditions mean that fleets are both extending existing company car contracts and taking out new leases for longer periods of time, according to data from Ogilvie Fleet.
Ogilvie Fleet’s financial year runs from July 1 to June 30 and data for the last three years reveals that:
• 2009/10 - the term of all live contracts averaged 38 months across the total fleet; 25% of all new orders were placed for a period in excess of 36 months
• 2010/11 - the term of all live contracts averaged 40 months across the total fleet; 32% of all new orders were placed for a period in excess of 36 months
• 2011/12 - the term of all live contracts averaged 41 months across the total fleet; 46% of all new orders were placed for a period in excess of 36 months
Nick Hardy, sales and marketing director at Ogilvie Fleet, said: “Existing company car contracts may be for 36 months but clients are not always confident enough in the economy to take out a new lease. Instead they are extending the contract period on existing vehicles. The rental adjustment typically delivers a ‘double figure percentage’ monthly saving if extended for 12 months.
“We have no issue with lease extension as long as cars are in good condition and will have less than about 100,000 miles on the clock at defleet.
“Not all leasing companies implement a rental rate reduction when contracts are extended so Ogilvie’s flexibility in agreeing to do so is welcomed by existing clients as well as new ones.”
In relation to the near doubling of the number of new company car contracts written for longer than the historic benchmark of three years/60,000 miles - typically 42 or 48 months - Hardy explained: “Fleet operators are looking to Ogilvie Fleet to help them cut budgets by typically 10%.
“The easiest and simplest way to do that is to lease a car over a longer period of time. As a result they are achieving monthly rental savings of 10-15% which means they are meeting their objective.”
Although operating vehicles into a fourth year increases the proportion of the total rental related to service, maintenance and repair (SMR) costs, many manufacturer warranties expire at the end of the third year and total mileages increase typically to four years/80,000 there is a rental reduction as the residual value curve flattens out.
“Most new cars and vans are easily capable of running to four years, even with six-figure mileages, and many of our clients have used some of the cost saving, and better financial modelling with Ogilvie True Cost, to provide drivers with a better car,” Hardy said. “This minimises the potential HR implications of asking drivers to keep a car for a year longer and is a win-win in most cases.”
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