Contract hire with maintenance is the only risk-free funding solution in today’s uncertain business and economic times, says Activa Contracts.
Ian Hill, managing director of Activa Contracts, said that suggestions that funding vehicles on finance lease, perhaps with a bolt-on ‘actual cost’ fleet management package, is not the risk-free product its backers portray.
For example, unlike contract hire, finance lease sees lessees take on the residual value risk, he added.
Hill said: “Contract hire provides certainty for fleets in uncertain times.
“Our customers want certainty and company boards want to know how much it costs to run their vehicle fleet all-in on a monthly basis.
“Contract hire inclusive of maintenance and other services, if desired, delivers that certainty.
“Fleet is non-core for most organisations.
“Just as businesses outsource other non-core activities such as office cleaning and security so they do fleet provision because they want costs to be predictable.
“Vehicle residual values along with maintenance costs are the huge fleet unknown with Brexit and in times of economic uncertainty so why would any company want to expose themselves to taking on those risks?
“Therefore, unlike some industry commentators, I do not believe that finance lease is the right funding option at this time in the economic cycle.”
He added that finance lease had a degree of popularity with some organisations as it was the only form of leasing that appeared on-balance sheet until the January 2019 International Accounting Standards (IAS) also brought contract hire on to balance sheets.
Research carried out for the FN50 2018 report found that contract hire/operating lease was by far the most popular method of funding, with 91% of cars leased through the UK’s top 100 leasing companies funded that way.
Finance lease accounted for 2%, also behind salary sacrifice (4%), but ahead of employee car ownership. Other methods accounted for the remaining 2%.