Fleet Leasing

Car lease contract extensions a ‘false economy’, claims Arval

Row of parked cars

Arval says fleets should think twice before considering extending their company car contracts.

The fleet management and leasing company claims that, while lease extensions are currently relatively low, more customers appear to be mentioning and considering them.

Richard Cox, fleet consultant at Arval, said: “In some ways, a contract extension appears to be a sensible response to the current levels of uncertainty that businesses face. It allows them to defer taking out new contracts until the medium-long term picture is clearer.

“However, the fact is that, measured on a month-to month basis, a contract extension is generally a false economy. Almost its only advantage is that it allows you to kick the can further down the road and put off the decision on a new vehicle for a while.”

Cox explained that signing up for a new vehicle would generally bring a range of benefits. “A new car will almost certainly be cheaper in terms of fuel economy than a 3-4 year old model and, in many cases, also attract a reduced level of benefit of both driver and employee taxation thanks to emissions improvements,” he said.

“Additionally, a car that is three years old will often be attracting extra costs in terms of predictable wear items such as tyres and brake pads but even be heading towards needing major mechanical repairs just at the point it falls out of manufacturer warranty.”

He said that, quite often, decisions to extend contracts at times of economic uncertainty were made as a result not of sound financial reasoning but tended to be based more on emotional factors.

He continued: “In the current situation, many businesses are looking at areas where they can reduce costs or defer investment decisions, and that is an understandable strategy. As part of this kind of exercise, keeping hold of your existing car looks like a saving even though it probably isn’t.

“The best course of action is to sit down with our consultants and run the figures for a contract extension, looking at the likely financial outcome.

“If hanging on to existing cars makes sense, we’ll help you to prove the case – but in the vast majority of instances that we see, sticking to your standard renewal policy is the correct financial decision.”

 



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Comments

  • B. Alberink - 07/05/2019 11:28

    I used to do work (and execute) quite a few of contract extensions as a consultant for a leasing company. I do agree with some points raised in the article but usually found that there was substantial benefits to be had with an extension due to the decreasing depreciation element which is, by far, the biggest proportion of the lease cost. Additional maintenance cost is usually much lower than the saving on the depreciation side with the extension.

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