Car fair wear and tear charges fall as leasing returns to 'business as usual'

This article has been taken from the FN50 2024 special report, providing insight into the UK’s biggest car, van and truck contract hire, leasing and fleet management companies. It is sponsored by The AA, Ford, Allscreens Nationwide, Cox Automotive, Fleet Procure, FMG, Geotab, Jaama, Leasing Portal, Mer, Nexus, System Edstrom and vGroup International.

Both the average fair wear and tear charge incurred by company cars (excluding salary sacrifice) and the average proportion of cars which attracted the fees from leasing companies have fallen over the past 12 months.

The size of the average charge has fallen slightly after four years of consecutive growth to sit at £368, a 0.5% drop from last year’s record high of £370, and 14% higher than it was five years ago.

The average proportion of cars which attracted the penalties from leasing companies also declined, from 49% in 2023 to 45% in 2024. This is the lowest proportion for five years.

These reductions come despite cars being leased for longer and driven further over the previous year: FN50 research shows the average replacement cycle this year was 38 months/47,265 miles, 6% and 2% increases respectively compared with 2023’s average of 36 months/46,000 miles.

This could be because the UK is returning more to ‘business as usual’ as the Covid pandemic disappears further into the past, with an increasing number of employers wanting to mandate people back into the office full-time.

Although supply shortages caused by the pandemic are easing, they still exist.

“Often with vehicle replacements being delayed, the vehicle is being used for several months more than originally planned,” says Simon Staton, director of client management at Venson Automotive Solutions.

“Sometimes this results in fleets delaying getting minor/cosmetic repairs dealt with, which then build up to be a bigger or more costly repair by the end of the lease.

“We’ve not seen any real differences between internal combustion engine (ICE) and electric vehicles (EVs), other than, very rarely, a charge cable not being returned with a vehicle.”

Wide disparity

This year’s FN50 research found a wide disparity between the charges among individual leasing companies as they ranged from £93 to £807; a wider spread than last year’s figures, which spanned from £70 to £636. Looking more closely at this year’s figure and dividing them into four equal sections, 30% were between £93 and £272, 33% between £273 and £452, 27% between £453 and £625, and 10% between £626 and £807.

The range of average proportions of cars subject to fair wear and tear charges from individual leasing companies went from 2% to 88%.

Within this spread, 14% were between 2% and 23%, 35% between 24% and 45%, 35% between 46% and 77%, and 16% between 78% and 88%.

The leasing company which had the highest proportion of returned cars subject to fair wear and tear charges also had the highest average charge of £807.

Most leasing companies adhere to the BVRLA Fair Wear and Tear standard to give customers consistency and clarity on the often-contentious issue.

This covers areas such as damage to the vehicle interior and exterior, the state of tyres and wheels, the presence of in-vehicle documentation and – for EVs – the inclusion of charging cables.

When a leasing company receives a vehicle back from a customer at the end of an agreement, it has to then decide whether to repair the car before defleeting it, or whether it makes more economic sense to not repair it but, instead, accept it will sell for less at auction and perhaps take longer for a buyer to snap it up.

“We’ve found that more vendors are choosing to invest in refurb for their stock, particularly older cars with some damage, as they understand the market demand for prime stock is ever increasing,” says Gordon Cockle, director of remarketing at Aston Barclay, which grades stock under the NAMA (National Association of Motor Auctions) scheme.

“If we can increase the NAMA grading up at least one band, they will see an increase in bids and, in the majority of cases, vendors will immediately recoup their investment.”

Little or no damage

The decision whether to carry out any repairs – as well as lower fair wear and tear charges – can be made simpler if the vehicles are returned with little or no damage in the first place.

Leasing companies, typically, also employ a damage waiver and the average cost of this has fallen £40 to £163 this year; the lowest since 2021.

There is obviously a disparity in the range of average damage waivers between leasing companies. The lowest amount charged by respondents was £100, with the highest £250.

Less damage incurred on salary sacrifice cars

Previous analysis has suggested that the damage incurred on cars leased under salary sacrifice is less than on company cars as drivers perceive them to be more of their own personal vehicle.

It is also considered that leasing companies are less willing to charge individuals than they are organisations.

This year’s research supports that: the average fair wear and tear charge for salary sacrifice cars in this year’s FN50 research was £334, 9% less than the figure for company cars.

The salary sacrifice figure is, however, 3% higher than in 2023, which, itself, was 11% lower than the previous year.

The spread of average charges among individual leasing companies ranged from £60 to £626. Dividing this disparity into two even sections, 50% were between £60 and £343, with the remaining 50% between £344 and £626.

There were also differences in the percentage of cars charged and the level of the damage waiver.

The data shows the average proportion of salary sacrifice cars subject to the charges was 27%, three percentage points higher than last year.

However, it is also significantly lower than the 45% reported for non-salary sacrifice cars.

Individual leasing companies reported average proportions between 0% and 62%. Close to one-in-six (17%) reported average proportions above 50%, with half saying their share was 15% or below.

The average damage waiver for salary sacrifice cars was £225, up £12 from last year. Individual average waivers range from £125 to £500.

The leasing industry faces significant change as electric vehicle residual values continue their two-year decline, impacting profits and prompting calls for government support of the used EV market. The impact has been significant: after the record £2 billion profits seen by the FN50 in 2023, a £645 million reduction has been recorded this year.

Yet, this year’s FN50 also brings signs of robust growth. For the first time, funded fleet levels have surpassed 1.8 million vehicles, breaking a record set only a year ago. Both car and van totals saw increases, with the latter returning to growth after last year’s decline. Additionally, this year has been marked by change across the top 50 leasing companies with 5 new companies entering the list and 8 from last year appointing new leaders. 

This dynamic landscape—driven by innovation in AI, fleet management, and emissions strategies—is explored in 2024's FN50 report, along with key industry challenges and growth areas.

It is sponsored by The AA, Ford, Allscreens Nationwide, Cox Automotive, Fleet Procure, FMG, Geotab, Jaama, Leasing Portal, Mer, Nexus, System Edstrom and vGroup International.