PAUL ASHTON, managing director of the short term leasing specialist Equalease, says that a number of factors are likely to mean that fleets which have favoured outright purchase in the past will instead turn to some sort of leasing. Here’s Paul’s special report.BUSINESS car leasing is likely to become the dominant method of company car acquisition when the fleet new car market regains buoyancy.
Until the recession, there was a fairly even split between leasing and outright purchase for company car acquisition. However, the events of the last few years are likely to mean that many companies are unlikely to return to buying their own vehicles. They will, instead, turn to leasing in the future.
I believe there were three main factors behind this:
- a desire not to use existing capital or take on loans to fund purchasing;
- a fear of where residual values may head in coming years; and
- the development of more flexible leasing products rather than standard three-four year leases.
Purchasing a company car is an act of corporate confidence. It means your business has cash available, is capable of handling issues such as maintenance, and is happy to take the residual risk.
The fact is that in late 2010 and for the foreseeable future, that kind of confidence is in short supply. Instead, businesses are looking to make decisions that minimise their initial outlay, reduce their exposure to residual risk and outsource management of maintenance. Leasing is the answer.
The emergence of more flexible short term leasing options will also help.
One of the main reasons companies have avoided leasing in the past is because of the lease lengths on offer – usually three or four years. That is quite a lengthy commitment for a business that is very concerned about what the next six months in the current climate.
The development of short term leasing of periods from 3-12 months means that employers can gain the key benefits of leasing without the long term obligation, and removes another barrier to its adoption.
Further information
Editor’s note: Car leasing, or contract hire, is a method of running a business car over a period of time and miles. You pay a monthly lease amount. At the end of the term, you return the car to the leasing provider, although it has to meet certain conditions of wear and tear.
Short-term leasing – often referred to as lifestyle leasing – is the same but over shorter periods. You tend to pay more for the monthly rentals, but in return you have a more flexible package.
