Should fleets buy their vehicles outright rather than leasing them?

YES

The case for risk versus off-balance sheet vehicles is complex.

Unprecedented growth, coupled with demand above expectation, meant flexibility was a key decider in Helphire’s switch from lease to outright purchase.

We were able to flex the hold periods of our risk fleet without penalty, taking the additional depreciation over extended life.

Risk vehicles allow us to react to the market, selling and buying when the time is right.

This has been instrumental in managing one of the fundamentals of our model – ie like-for-like provision.

Planning this mix is difficult, so a nimble fleet – that we can rotate fast – allows us to keep the optimum mix for business demand.

Off-balance sheet vehicles offer us fixed holding costs, but we have to forfeit our flexibility to get this.

Most contract hire suppliers began to move away from short cycle provision and this meant we bought fewer cars and drove lower discounts, thus increasing our costs.

We believe the use of contract hire as insulation against residual value falls is a misnomer, as the extra cost of holding cars has to be passed on.

We are prudent in our depreciation policy, revisiting the expected selling price every month and making changes over the remaining life of the vehicle.

We therefore take any additional charge on a monthly basis, reflecting the true cost of our fleet in the profit and loss.

The current lack of credit in the market means that holding our own fleet and the associated credit to do so is a benefit in itself.

The economic climate makes it difficult to obtain funding for vehicles in the volumes we require and this has an adverse impact on leasing and contract hire companies that are now increasing their rates to compensate for this and lower residual values.

Mark Adams, chief executive, Helphire

NO

First and foremost, leasing allows capital to be used more effectively within a business.

Quite simply, a financial director should be asking the question: why tie up cash that can be used to return significant levels of profit and benefit to shareholders?

As importantly in the current climate, shareholders should be demanding to know why cash is being tied up unnecessarily.

Secondly, managing a fleet effectively and productively is a complex and sophisticated process and is almost certainly a non-core skill to most businesses.

Outsourcing either all or significant parts of fleet operation is the only way to ensure the optimum management, reporting and control of a fleet operation.

Thirdly, any item used for business should attract a VAT benefit and cars are no different.

Why pass up on such an obvious financial saving that’s not available if the car is simply bought outright?

Clearly there are certain, but fairly limited, circumstances where the VAT benefit cannot be realised.

Add to these three key points the necessity to constantly review the optimum financial and management solution, especially in the current economic climate, and the steer towards using a leasing company is even more apparent.

It is almost beyond the realms of possibility that an end-user company will have the same level of financial expertise and sophistication, operational processes and dedicated resource that will facilitate the optimum financial solution for the company and the best support for its drivers.

And my final point? Just ask any ‘non-leasing’ FD who is staring at the significant holes in his or her balance sheet caused by the current residual value turmoil as to what financial policy they should have chosen.

Gary Killeen, commercial leader, GE Capital Solutions Fleet Services