Leasing and fleet management companies are regularly paying organisations a ‘signing on fee’ to win business, according to Venson Automotive Solutions.
Known as a ‘golden hello’, securing a signing on fee may feel like a good deal for procurement teams, but Venson is warning that nothing comes for free and any short-term savings - or gains - are likely to be recouped by the provider over the lifetime of the contract.
Samantha Roff, managing director of Venson, said: “Procurement departments regularly speak of ‘locking down’ a contract, however, there is very little that is ‘fixed’ in a vehicle leasing contract.”
She argues that a price presented in a tender is based on a specific moment in time and doesn’t take into account future price rises.
“There will be many legitimate reasons that vehicle leasing and fleet management companies can apply price changes,” she said. “These include manufacturers introducing price rises, residual values reducing, changing interest rates and the cost of funding varying.
“In addition, there will be changes in service, maintenance and repair costs, as well as the likelihood of discount terms the leasing companies receive from manufacturers altering.
“Crucially all these factors contribute to a monthly lease rate, resulting in what is known as ‘rate creep’, when the monthly rental costs gradually increase.”
Over the life of a three or four year contract, the supplier can recoup the cost of any signing on fee. “Consequently, the reality is that it is virtually impossible to challenge those vehicle leasing providers, who softened a contract signing with a ‘golden hello’, on how they set monthly contract hire rates,” said Roff.
“Fundamentally, fleet vehicle procurement is completely different to businesses procuring other goods or services.
“It is virtually impossible to think of another product or service that will be acquired by an organisation, the price for which will likely change on a daily basis due to their being so many variables.”