In among all of the advanced funding options available, there is one old-fashioned way of getting vehicles on to your fleet – cash.

This funding method allows you to turn up at your dealer, agree a healthy discount for your cash purchase, place your order and wait for delivery.

Or you can negotiate discounts in advance with the manufacturer on the promise of volume purchases. 

Historically, discounts of 50-60% weren’t uncommon on solus deals, although it’s now more likely to be in the range of 30-40% for a fleet that is able to commit to sufficient volumes.

With vehicle manufacturers struggling to sell new models, VAT at 15% (until the end of the year), cashback offers and interest rates at an all-time low of 0.5%, there has never been a better time to buy a new vehicle.

A cash buyer turning up at a showroom wanting to buy perhaps five new vehicles will get red carpet treatment.

But buying the vehicles is not the end of the story – they still need managing during their time on the fleet, and this is where the workload for an outright purchase fleet increases.

Unlike a contract hire package, where companies can specify maintenance cover, accident management, driver training and even a consultancy service, all an outright purchase fleet receives is the standard manufacturer’s warranty on the vehicles.

It needs a full-time fleet manager. There are big risks involved but, done properly, there are bigger savings. 

Case study: Cambridgeshire Constabulary

Cambridgeshire Constabulary operates an outright purchase operation for its fleet of 490 vehicles.

The majority of the fleet (around 70%) is supplied by Ford, Skoda and Volvo and all maintenance work is
undertaken in-house.

Fleet manager John Robinson says: “We’ve looked at leasing but it was not considered a suitable option – adhering to fixed mileage contracts would be an unacceptable constraint on the way we operate.

“Outright purchase gives me a high degree of flexibility in how I operate and replace the fleet.

“I can buy and sell vehicles with ease to reflect operational requirements and retain vehicles after planned
replacement if there is a need.”

Buying vehicles works for charities

Outright purchase will not appeal to all fleets, as it needs a fairly cash-rich organisation to commit to such a large capital expenditure.

One area where it does appeal is for charities which run large fleets.

Because they rely on charitable donations, they can not commit to multi-year funding deals as they can not assume they will have a continuous and stable level of funding every year.

The RSPCA is a prime example. It recently added 910 new Citroën vans on an outright purchase deal.

"While the showroom price for this deal was more than £10 million, the charity would have secured a considerable discount on the purchase price.

Carroll Lamport, from the RSPCA’s inspectorate futures projects, said: “The Citroën van deal is part of a move to future-proof our van operations.”

Advantages - fleet control, flexibility and potential savings

Outright purchase means that total control is held by the fleet manager.

He or she decides on where to get the money to pay for the vehicles, haggles over the cost, sources maintenance and arranges disposal.

Such is its popularity that nearly half of the vehicles joining company fleets are still bought under some form of outright purchase scheme.

Fleet Audits’ director Stewart Whyte says: “The single biggest reason for outright purchase is flexibility. A fleet can buy the car of its choice from the venue of its choice.

“Buying for cash means no termination charges and should business circumstances change you can sell the car tomorrow if needed, or hang on to it for 20 years.

“It also means that fleets can do deals on part-exchanges. There is also scrappage, although there are very few vehicles on fleets which are more than 10 years old.”

With this power, as the proverb goes, also comes great responsibility.

The fleet decision-maker or finance director must understand the dynamics of the fleet market, of doing deals, of keeping suppliers under fiscal control and of the disposals market.

Running costs also need to be considered, including maintenance, so a garage network needs to be identified, including arrangements for servicing standards.

On top of that, it needs an experienced fleet manager who can spot unnecessary or over-priced work being done.

If a firm decides to keep the vehicles on its balance sheet, the depreciation can be offset by capital allowances, with vehicles emitting 161g/km of CO2 or under attracting more favourable rates (20% writing down allowance) than those emitting above this benchmark figure (10% writing down allowance). And for vehicles emitting 111g/km of CO2 of less, 100% of the first year depreciation can be off-set.

Once the vehicles have reached the end of their fleet life, methods for disposal also need to be
considered.

A good fleet manager who understands and anticipates the market trends can put cars in the right place at the right time, adding hundreds of pounds to their resale value.

So it is important that the company has effective, strong and clear policies when it comes to vehicle replacement cycles, to ensure cars and vans are kept in good condition and that drivers are not racking up huge mileages, which would mean losing more money at resale time.

Disadvantages - residual risks, ties up cash and needs negotiating skills

The residual value of an outright purchase car, if managed well, can be a real cost saving.

However, if managed badly, or something untoward happens in the market and prices drop (as seen last year), the company will carry that extra cost. If you lease cars, that risk is passed to someone else.

The cash to buy the cars has to come from somewhere, either from the business or a funding provider.
If money is coming from the business, the company will ask whether it is necessary to have significant amounts of cash tied to depreciating assets when it could be ploughed into other parts of the business.

If external funding is chosen, then getting the best interest rate is a key issue, along with agreeing whether money will be provided on a fixed interest rate, or a variable one.

The focus must then move to getting the vehicles, either through negotiations with dealers, or direct contact with a manufacturer’s fleet sales team.

In each case, obtaining the best price and discount is vital to controlling running costs.

This needs a thorough understanding of the market and some keen negotiating skills to get the best prices. Without these skills businesses might lose out.

Whyte says: “Buying for cash is only valid if you actually have the cash in the first place.

“Outright purchase means you take all the residual value risk, all the SMR (service, maintenance and repair) risk – you’ve got to do everything yourself.

Generally, you can’t do anything along the lines of a ‘one-stop shop’, one of the attractions of contract hire. Buying outright means you are on your own.”

Cost analysis

Fleets looking at outright purchase need to examine the wholelife costs of a vehicle rather than concentrate on the front-end price.

While on paper two cars may have a similar P11D value, the difference in what it will actually cost to run can be huge.

Stewart Whyte says: “Fleets need to do their sums. The only way to run a fleet is on a wholelife cost basis, and there are not many out there who do that.

“A car may have a low front-end price but if it has a poor residual value that advantage will disappear.

“Fleets also need to consider CO2 emissions as this will impact on driver benefit-in-kind tax,
corporation tax, Class 1A National Insurance Contributions, VED rates and fuel bills.”