Maintaining an efficient fleet on flexible rental

Uncertainty about length of contracts and the economy, plus the ability to add vehicles at short notice, are among the reasons why fleets are considering rental

Spot hire is a vital tool for fleet managers, allowing them to quickly get vehicles in the event of a breakdown, accident or to cover extra work.

Rental providers are seeing growth as the country experiences a period of economic uncertainty. Businesses can rely on rental to provide vehicles when demand is high but give them back when it is low with no early termination charges.

Fleet managers are more frequently opting to rent for longer; to cover new starters or to provide flex in their fleet during peak trading. Some have even switched to a rental-only method of vehicle funding.

Flexibility

Flexibility is the key selling point of the rental model. Whether you choose to rent for a day, week or month, the vehicle is often available immediately and can be returned or kept for longer without fuss.

Construction and civil engineering companies, which often require specific vehicles for short, pre-determined contracts, account for a large proportion of rental demand.

However, couriers and logistics is a growing sector because online shopping is driving demand for retailers to provide home delivery. In addition to a core fleet, these businesses may require significant increases in vehicle numbers to cover seasonal demands. But that does not mean they want to invest in lengthy contracts.

Similarly, operators in the heavy side of the industry are starting to seek greater flexibility. Nexus Vehicle Rental has seen a surge in demand for HGV's from its existing customers, promting the business to set up a new HGV rental solution.

"Its early days and it took us some time to develop a national network of suppliers, but we now have orders in the books and expect a large amount of business to come from construction fleets and the haulage industry," explained David Brennan, CEO of Nexus.

Greater demand for longer hire periods has seen more rental companies introduce flexible contracts which can last for two, three or even five years. It’s like a contract hire, but can still be terminated at any time.

Stuart Russell, specialist vehicle director at Europcar, says: “The traditional options open to commercial users are contract hire with a fixed term or outright purchase. Rental gives them both the flexibility to adjust the fleet up and down as their business needs peak and trough but also it’s off balance sheet.”

Vehicles bought outright appear on the balance sheet but leased vehicles do not. However, the new IASB lease accounting rules due in 2019 mean leased assets will sit on the balance sheet for corporates that report to the International Financial Reporting Standards (most UK firms report to GAAP which is unaffected by the changes). Vehicles rented for up to 12 months do not have to be reported.

Russell adds: “Longer term rental is slightly more expensive but nowadays not a lot more. The flexibility it gives means there is no risk of early termination charges.”

Paul Brown, head of group fleet at Enserve, switched his entire fleet to rental through an arrangement with the UK’s largest van provider, Northgate, last year. 

He says: “We looked at a different way of funding vehicles – typically you take the vehicle and you’re stuck with it for a set period of time, but things change within any industry.

“What we found is leasing companies are very inflexible to work with – especially if your requirements change.”

During his time as head of fleet for Kier Group, Brown oversaw a lot of council contracts where the business would typically rent 600 identical spot hire vehicles for the first three months. Over that period he could make sure everyone had the right size and shape of vehicle.

Once he was satisfied he had the right people in the right vehicles, Brown would order them from his leasing provider and send the 600 spot hire vans back to the rental company. 

“When it asked why we couldn’t keep them for the full four years we said it’s simply down to price. We said we’d keep them for the full term but didn’t want to pay spot hire rates,” Brown says. 

“Eventually they saw the opportunity and said they would match the leasing company’s price. The added cherry on the cake is the free replacement vehicle if anything breaks down or needs a service.

“We were one of the first companies Northgate did this with on a larger scale. So far we’ve had one contract that terminated early and we had to hand the vehicles back. You wouldn’t get that flex with the leasing company.

“If the van does go back they put it back into their daily rental fleet so they don’t lose money.”

Eddie Aston, CEO at Northgate, believes many companies are frustrated by the established methods of renting vehicles. He believes they don’t reflect the fast-evolving business needs of modern fleets. 

“Businesses want flexibility, control, regular payment with no extra costs and no worries over vehicles off the road,” he says. “But they also want a partnership with a company that understands their need for agility, cost control and choice.”

Spreading the cost of conversions

Many operators also require additional equipment or livery on their vehicles. A rental company is not averse to putting that equipment on and spreading the cost across the rental and even absorbing some of it, knowing that the rental may run on and on. 

“We want the customer to book for 18 months but end     up keeping the vehicle for three-four years,” says Russell.

“If you look at what we consider to be old-school vehicle providers; they built a model where they run their own workshops and tailor a vehicle to a customer’s requirement.

“What’s happened in the past six-seven years is all the familiar rental companies have entered that space, so we are now providing bespoke vehicles with liveries and conversions. Going back nine years we only provided a small, medium or large van,” he adds.

Northgate offers to tailor a vehicle to meet a customer’s specific requirements.  Additional equipment can be added through a plan called Norflex – and this can either be included in the weekly hire rate or paid for in a single upfront payment. If a vehicle is returned early and the customer is paying on a weekly basis for additional equipment, then the customer simply pays the outstanding balance.

James Rafferty, TOM vehicle rental, says fleets are increasingly requesting vehicles that require additional specification added on to them. “Dependent on where in the country it is, several of our depots are geared up to convert. Should it be in an area we don’t have a depot we will outsource,” he says.

“What we are seeing is that a lot of the bigger fleets know exactly what vehicles they want. Customers come to us with a spec and ask us to quote on it. There is often a very low tolerance for what would be accepted.”

Blended rental solutions

Russell believes the perfect blend for medium to large corporates is to combine rental with contract hire or outright purchase. 

“If you have a consistent level of business you can complement that with a bunch of flexible rentals, giving flex but also a core fleet that may cost slightly less than going full rental,” he says.

While rental may not be the cheapest solution, Danny Glynn, vice president at Enterprise Flex-E-Rent, says fleets can save money in the long run.

“Savings are made in two ways. Firstly, a rental model will free up capital so they can invest elsewhere in their business. Secondly, if there is a loss of a contract or shorter term contract awarded, a lease or purchase model would become more expensive. In rental there is no differentiation in price for having a vehicle three months or three years. They can scale up or down dependent on the state of their business,” he explains.

Brown adds: “Since switching to rental our downtime and operations have greatly improved. A £70 per week van could cost £70 per hour in lost work if it’s off the road. We didn’t have that flexibility with the leasing companies. 

“Northgate recover it and get the driver on the road within an hour. They manage all our servicing 30 days in advance: we know when it needs to go in and can arrange it. When the driver turns up for the service he knows there’s a vehicle waiting for him and he can go off and continue working.”

For some businesses rental may be the only viable option. Asset Alliance realised that many of its customers were operating on rolling contracts with their customers, often for 12 months. For these operators, being locked in to a three-year or longer deal could be financially crippling if they were to lose that contract.

Therefore Asset Alliance launched a flexible product that offers a leasing package but on a shorter rolling contract.

“Normally we offer them a full contract hire price and then offer a flex solution besides that,” says David Potter, commercial and development director at Asset Alliance. 

“If they feel they don’t have the commitment from their customer to suit a three- or four-year deal the 12 month rolling may be a better option. It means we can leverage our buying power, buy the products at the right price and we can pass that saving on to the customers.”

Helen Brislane is the commercial manager at Momentum Instore which provides retail surveys and remerchandising services. She runs a rental-only fleet because the business operates lots of short contracts and uses temporary employees. Having a permanent fleet wouldn’t work for the business as its requirements for vehicles can fluctuate from anywhere between a handful and 300 at any time.

“We have negotiated hard with our supplier and I know that our rates are extremely competitive – the rental companies are open to negotiation,” says Brislane. “We also include breakdown and have been able to negotiate free delivery and collection so all costs are incorporated.”

PCNs, fines and damage risks

An operator who chooses to rent a vehicle is potentially at increased risk when it comes to penalty charge notices (PCNs), fines and damage recharges.

Rental vehicles can cause additional administration as any fines or PCNs will be directed to the hire company first. The hire company must then work out which client was renting the vehicle at the time and forward it. The operator is then at risk of being charged more for late payment.

To solve this issue most rental companies will pay all fines immediately and forward them on to the client. But those wanting to contest, or who have been penalised in error, often lose out.

Brislane says: “Parking charges are a big issue. Because we work for retailers we often use their car park or a retail park car park. If the driver isn’t reporting the registration to the right person and they aren’t passing it on to the parking company then we are inundated with PCNs. That’s due to the nature of the sector we are in.

“We’ve had success with one major parking company and we are permanently on their exemption list – but this came about after a prolonged period of having charges cancelled. It’s reduced our tickets from about 800 per year to 350.

“There are other companies that want to do the same but because we use hire vehicles the registrations change every day and they don’t all have the technology to support that.”

Damage recharges is a recurring issue for companies that rental vehicles. To try to overcome the issue, Europcar has developed a mobile app which its drivers use on delivery and collection.

Russell says: “Often we find damage on a vehicle, invoice the customer and they dispute it. So we’ve got this technology now which our drivers use to take digital images of the vehicle including the odometer and fuel gauge. That then is recorded in Google maps with the time and date. It’s firm evidence that we didn’t cause that damage and we’ll compare that with the photos from delivery and collection. 

“If there is additional damage then we will pass on those costs. If you can’t see the damage in the image then we don’t charge for it.

“Damage on vans is more of a problem than with cars; mainly due to the size, type of use and length on contracts.

“The issue for fleets is that often these vehicles are driven by numerous drivers throughout the rental. We do encourage a business to make sure that when we deliver a vehicle they look at the damage – we give a 24-hour amnesty so any damage reported within that period will not be charged.”

Brislane says damage remains a challenge and is a huge cost to the business. “With any sort of improvement in this area, there will still always be issues with damage. When you deal with remote workers who get vehicles sent to their home address you rely on them to report the damage within the right timescale. 

“Communication and prompt action is vital. The costs at the end of a lease wouldn’t be anywhere near what we pay for incidental damage.”

By contrast Brown is happy with his rental company’s damage policy. 

“We’ve not had an issue, even with in-life damage. It’s much easier than dealing with a leasing company,” he says. “The rental company just fixes it and invoices us if it’s within a set limit. Larger damage is dealt with by the insurance company and we treat it like a normal insurance claim.”