Consulting » Leasing – Take Your Pick.

There are many reasons why companies want to be able to offer eligible employees a company car for periods of less than a year. For example, visiting managers from overseas subsidiaries on short-term secondment may require a vehicle, as well as project teams that pull together experts from different regions. But most car rental companies are not prepared to offer contracts for more than a few days or weeks.

The problem for companies in this position, according to Andrew Cope, managing director of car leasing company Zenith, is that they want to have all the managed lease contract terms they would expect from a three-year lease on a very short-term basis. The last thing they want is to get stuck with the equivalent of a daily rental price on a fleet of 20 or so cars they are going to need for, say, a six-month period. But they do want to be able to get in and out of the contract just as they would for a rental vehicle.

The reality, he says, is that there are plenty of options on the market that represent a reasonable half-way house between an extended lease and daily-rate contract. “This is nothing new.

We have always done short loan work with companies. The reasons why companies want short loans for periods of less than a year are limitless, and we see a reasonable level of demand for these deals.”

The problem for a leasing company wanting to offer its corporate clients a reasonable deal on a short-term lease is how to get a reasonable return out of such a short-term contract without overpricing the car for the corporate. One attractive way for the leasing company to find its cars is to take advantage of early termination deals from its long-term lease customers. Any leasing company with a thousand or so cars out on lease will have a number of early terminations.

According to Cope, Zenith gets a number of quality cars coming back after between four and nine months of use. Cope reckons Zenith has relationships with car rental companies that enable it to offer customers short-term contract vehicles without damaging its residuals calculations on the long-term rental fleet. “At any one point, we probably have about 300 vehicles in the short-term lease category. Many of them are Ford Focuses or Mondeos, but some are luxury cars leased to directors who have moved on to other models,” he says.

According to Cope, the comparative figures for daily or weekly rental, short-term leasing and long-term leasing work out roughly as follows.

The rental rates for a Mondeo might be £600 a month. The equivalent car on a three-year contract would probably cost about £300 a month. The short-term rental deal would be about £450 a month, with all the advantages of rental in terms of a clean entry and exit from the vehicle. By comparison, with this kind of pricing, the option of taking a lease contract for a year, then terminating early and paying the resulting penalty, would be far more expensive.

Lesley Sadd, marketing manager at Thrifty Car Rental, reckons her company does a minimum one-month Flexi Fleet product. This allows a company to lease cars on a rolling one-month notice, with no additional commitment beyond the month. Pricing is based on the class of car and whether the customer wants a full, part or no maintenance contract. “We can cater for everything, from full maintenance to an excessive mileage contract. But the cheapest rates are where the customer takes responsibility for basic maintenance and keeps within our suggested mileage,” she says.

Most of the rental companies will be happy to take on short-term contracts of longer than a month but less than a year and, as with Thrifty, they will have a specific branded product aimed at this kind of business. Hertz, for example, well known for its daily rental business, launched a product in May 2002 called Corporate Choice. This product is Europe-facing and aims to take account of the movement of executives from countries across Europe, possibly to take part in projects of several months’ duration.

Corporate Choice is aimed at business travel agencies looking to book long-term UK rentals on behalf of their small to medium-size enterprise customers.

Hertz sees it as also offering a useful ‘try before you buy’ option for corporates taking on a new mid-level employee. They can test the water and see how the new employee works out using a Corporate Choice car, then commit to buying or leasing a long-term company car when they are sure they have the right person.

As Cope says, the short-term leasing market has a long history in both the company car and the commercial van space. It is not where the real growth in the leasing sector is, but it certainly is a valuable service to companies. The amount of competition in the market for this service means companies should not have too much difficulty finding reasonable terms.