Special Feature - Fleet: Park your costs – the expense of running a fleet

Sale and leaseback
A company car park can be the biggest hidden bank account a company has, according to Roddy Graham, commercial director for Leasedrive Velo. In a sale and leaseback deal, a leasing company buys a company fleet at market value and leases it back to the client company. In a climate where corporate credit is hard to find and where existing credit agreements are slashed, it is a good source of cash and an opportunity for companies to make money from an asset that is guaranteed to depreciate. It also provides predictable cashflows through a monthly rental fixed for the period of the lease and could also bring a headcount saving in an internal fleet department.

Companies that have undertaken sale and leaseback contracts include wholesale distributor Palmer and Harvey, in a £2.1m contract with Leasedrive Velo; Merlin Professional Claims Services, with Zenith Provecta; and contractor Speedy Hire with Lex.

“We inherited a fleet of 800 vehicles when we purchased a section of the Hewden business in 2007,” says Speedy Hire’s fleet manager, Ian Leonard. “It used to purchase its vehicles, so they came as assets on the books; we lease ours.

“Our vehicles were newer and safer, designed to make loading and unloading of plant as easy as possible. We quickly identified we would like to turn the Hewden vehicles into cash and put them into our stricter replacement schedules, so we sold them to Lex and leased them back on 1 August, the day we took over Hewden, and put £4m in the bank,” he explains.

Owning and managing cars simply isn’t a core activity for the vast majority of businesses. So the issue of sale and leaseback should be seen as a strategic decision about whether to lease or own cars outright ­ rather than as a purely finance-driven decision.
“If you lease, you also diversify your sources of funding, attach specific vehicle market knowledge to the acquisition, management and disposal of your vehicle assets and insulate your company from residual value risks,” says Alphabet’s Sinclair. “Outright purchase, on the other hand, ties capital up in depreciating assets.”

Flexible rental
“Unless a company is achieving a minimum 75% utilisation rate for each pool vehicle, running a pool fleet is seldom economical,” says Leasedrive Velo’s Roddy Graham. Enter flexible rental agreements. These can vary from short-term leases to short bolt-on agreements that extend a lease.

Leasedrive Velo offers rental agreements that aim to bridge the gap between daily rental and longer term leases. “Both products have seen an increase in uptake over recent years, with 90% of rental covering employee probationary periods,” says Graham.

Fuel card provider Arval provides vehicle rental for anything from 28 days to 12 months, in 28-day cycles, giving more flexibility. In addition, some of the car rental companies have stepped into the breach created by economic pressure, expanding the market for flexible contracts. “Avis Flex provides companies with a flexible option for longer-term vehicle use, with a minimum period of one month,” says Avis UK’s sales director, Anthony Ainsworth.

Majestic Wine Warehouses uses Arval service to cope with large seasonal orders starting every November. Majestic’s retail support manager Liz Holmes says the orders are mostly for delivery in a short time frame, between the first week of December and New Year. To fulfil them, the company uses an extra 50 or so vehicles at in addition to the 170 vans and 40 cars on its full-time fleet. “The reliability and flexibility that Arval offers is an important consideration when it comes to deciding whom we use for getting the right vehicles to our stores at the right time,” Holmes adds.

However, things are beginning to change after the initial strong reaction when recession began to bite, which sparked an upsurge in demand for short-term fixes such as flexible rental. “Now that businesses have restructured, demand for longer-term funding methods is returning and we are seeing a significant increase in tenders from companies looking to fundamentally change their car schemes,” says Alphabet’s Sinclair. “A key driver is the opportunity to introduce funding products, such as salary sacrifice or motivational leasing that maximise the tax advantages and cost benefits of providing employees with low CO2-emitting cars.”