Consulting » Decisions – Leases

As little as five years ago, companies that needed a short-term vehicle lease had few options. But with the unpredictable economy of the past few years, when organisations had to lay off staff, and for people on project work, this was an expensive way of running a fleet. Responding to these requirements both car rental and leasing companies provide short-term arrangements, giving the financial and administrative flexibility to fill the gap.

Avis launched MaxiRent in October 2004 which, with a minimum rental period of 28 days and available for up to 12 months, was designed to fill the gap between short-term rental and long-term leasing.

“Originally, we targeted the SME market with MaxiRent but it struck a chord with buyers in larger companies,” says Ian Roberts, Avis head of field sales. “Corporations that provide a mobility option have been challenged by costs and, as they downsized, had spare lease cars in the pool that were costing them money.

“Large organisations often start with daily rental and then switch to a more cost-effective lease,” he says. “We have a flexible product, as long as the rental period is longer than 28 days, but if a customer can commit to, say, four months, then we can give them a better rate.” Customers may change from a short- to medium-term plan, but not the other way round.

A similar option is available from Enterprise Rent a Car. Its Month or More scheme provides rentals for a minimum of one month, as the name suggests. “We have seen companies reconsider their fleet product in recent years,” says Brice Adamson, managing director of Enterprise Rent a Car UK & Ireland. “They have been reluctant to commit to a company car for a new employee and have taken a car for the probationary period. Organisations are being cautious in their staffing requirements; there is a focus on expense and risk. It is more expensive to lease for less than a month, but it is more flexible,” he says.

Provecta makes arrangements for the employees of client companies to use rental vehicles during their probationary period. “We arrange for the hire car to be delivered and this is invoiced directly to the driver, who claims it back from the company. This means there is no P11D,” says director of sales Nicholas Phillips.

Leasing companies are also providing short-term options. “We run a number of vehicles on a mini lease of between three and six months,” says Andrew Cope, chief executive of Zenith. “It is popular for teams coming in from another country. Although a long-term lease is cheaper, if people leave early there is a termination penalty. Whether for project work or to cater for the vagaries of the economy, companies do not always want to be tied in to a long lease.”

Cope says most car leasing companies offer a short-term option, and business is growing. “As the market for mini leases becomes increasingly sophisticated, there is greater choice available. We are putting three-month leases to one company, six months to another.”

The increased demand is partly a result of companies’ disposing of their pool cars and turning instead to short-term options, according to Lex Vehicle Leasing, whose Flex3 flexible rental scheme provides a vehicle for a minimum of three months at fixed cost. “We launched Flex3 in June 2004 and have already leased nearly 500 cars on the programme,” says Ian Drayton, daily rental operations manager. “Some companies need vehicles to cover seasonal demand or short-term contracts, but we have had the biggest take-up from organisations that were trading in their pool cars. We anticipate this area will continue to grow.”

According to Lex, companies running pool cars have problems ensuring vehicles are serviced on time, are safe to drive and repaired when damaged. Someone also has to ensure vehicles are refuelled for the next driver. “Pool cars are more labour-intensive than the rest of the fleet and carry greater duty of care risks. Companies are getting rid of them and opting for short-term leases instead,” says Drayton.

Although shorter leases are more expensive than the standard three-year commitment, they provide greater flexibility and meet a variety of corporate needs. As an option to expensive pool cars often sitting idle in a car park, or to long-term leases that are not designed to fit variable circumstances, they have a strong commercial imperative.