The number of businesses looking to sell and lease back their fleets is four times higher than it was before the Coronavirus pandeamic, according to ARI Fleet.
The funding and fleet management provider says more companies are looking to increase liquidity and restructure for the future, with the underlying reasons being the changing profile of vehicle usage and the need to release cash back into businesses.
Rory Mackinnon, ARI sales director, said: “Over the last few months, we have seen a significant fourfold increase in applications for our FlexBack sale and leaseback product as fleets get to grips with the new ‘normal’.
“It seems that as lockdowns relax and working practices become more predictable, companies are taking this time to make long-term strategic decisions - with one conclusion being that they don’t need vehicles on their balance sheet tying up much-needed cash.”
FlexBack allows fleets to refinance their vehicles without affecting day-to-day operations, while keeping the flexibility they need to maximise their return on investment.
With the Government’s furlough scheme ending in September and financial support lessening, many companies are looking to build up cash reserves to manage the next few months.
“The idea has always been with sale and leaseback that refinancing assets frees-up cash to be used elsewhere in the business. And in the current climate, cash reserves and cashflow is a crucial consideration; also, with low-interest rates, moving from an ownership to leasing model is financially efficient,” added Mackinnon.
The pandemic has led to a change in usage profiles, maintenance issues and uncertainty around residual values. As lots of assets haven’t been used much in the past year, they have lower mileages and running costs than were budgeted for,
Mackinnon says that a fleet could be sitting on an asset with a much higher value than expected. By refinancing them, fleets can achieve actual market value and also de-fleet vehicles that aren’t needed while the used market is strong.
“Previously with sale and leaseback products, many businesses looked at them and decided not to go ahead because they were swapping the flexibility of ownership for a more rigid contract hire proposition, and the benefits of a cash injection didn’t outweigh the increase in contractual obligations. But with FlexBack, they get the best of both worlds: finance and flexibility,” Mackinnon said.
Many business remain unsure what effects the move to electric is going to have on their fleets. By moving to a leased model now, they can hedge their bets and not end up exposed to ageing owned fleets that then cost a business more to move over to electric.