Best Practice Guide
LEASING
Finance options for fleets explained All fleets have different operating models, so no one funding method will fit all. Here’s a look at the different options available At a GreenFleet roundtable last year, which had several fleets in attendance, the question came up over whether outright ownership or a lease model works best when it comes to financing vehicles. The answer was not definitive. Both ownership and leasing were practiced by the fleets around the table, and sometimes a mixture of owned and leased vehicles were included in one fleet. Norman Harding, corporate fleet manager at London Borough of Hackney said: “When we buy a vehicle, we don’t just look at what it does, we also look at the funding streams, we look at capital and leasing options and will make a judgement.” Healthcare provider Healthcare at Home meanwhile uses exclusively leased vehicles. The company’s fleet manager, Georgina Smith explained: “By leasing our vehicles, we know exactly what we spend on every year. We need all our money to invest, so leasing is perfect.” Michael Cook, senior fleet engineer at Babcock International Group highlighted that leasing is a good option when you don’t know where you are heading in terms of new technology and fuels, as you don’t get the residual risk.
Within Heathrow Airport’s fleet meanwhile, there is a mix of leased and bought vehicles, as explained by the airport’s procurement manager, Iqbal Gill. The conclusion was that all companies having different operating models so no one funding method will fit all. So what are the financing options open to fleets?
The monthly rental rate takes into account registration fees, road fund licence, its period of use, agreed mileage, funding costs, and forecast residual value, as well as the cost of the car. The number of miles a car does has major implications for both its service requirements and resale value and so will have an impact on the rental rate. The monthly fee may include a ‘service’ element covering additional services, such as maintenance, replacement vehicles, roadside assistance, motor insurance, accident management and fuel cards.
Finance lease The BVRLA / Grant Thornton guide explains a finance lease as allowing the lessee to hire a vehicle for a fixed monthly fee, with the vehicle remaining the property of the leasing company. This is similar to contract hire, however, the vehicle will appear on the lessee’s balance sheet, Contract hire with outstanding rentals Contra ct The BVRLA’s Vehicle represented as a liability h ire sees Funding guide, done because the risks and a user hir in partnership with rewards of ownership e a car for a set pe Grant Thornton, says rest with the lessee. contract hire is the The guide says: “A and pre riod of time d main type of vehicle finance lease generally e t e rmined maximu leasing. Explaining conforms to one of m the process, it says: two standard formats: a at fixed mileage monthl “Contract hire sees a lease with a final balloon y rentals user hire a car for a set payment (smaller monthly period of time and prepayments with a final big determined maximum mileage payment at the end), or the at fixed monthly rentals. There fully amortised lease, in which the is no option for the hirer to purchase finance is spread over a fixed period with the vehicle and at the end of the contract, the same amount being paid on a regular it is returned to the leasing company.” basis, usually monthly. E
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