Liaise with leasing companies to curb end-of-contract charges

Fleet operators must liaise with their vehicle leasing providers in a bid to control end-of-contract damage charges.

That was the message to ACFO Conference delegates from Jim McNally, asset risk manager at vehicle leasing and management company Alphabet and chairman of the British Vehicle Rental and Leasing Association’s Residual Value and Remarketing Committee.

Research by industry publication Fleet News for its ‘FN50’ survey of the UK’s top 50 contract hire and leasing companies in 2012 estimated end of lease damage charges collectively added up to £45 million to fleet budgets.

McNally said: “Leasing companies don’t want to have end-of-contract charges. We would rather price for vehicle usage appropriately at the outset.

“If a fleet is going to use a vehicle in a quarry then don’t tell us that it will be used on the motorway because we will build the price strategy against that usage.”

He told delegates: “Talk to your leasing provider who will structure a rental that works for you and them.”

End-of-contract charges - or de-hire damage - is a compensation payment to leasing companies for returning a vehicle back to the condition outlined in a lease agreement.

Using the example of a BMW 320d Efficient Dynamics, Mr McNally said experts CAP predicted a residual value in ‘clean’ condition of £9,950 at three years/60,000 miles (May 2013); £9,400 in ‘average’ condition’ and £8,800 in ‘below average’.

“A £1,150 reduction on a car worth less than £10,000 is significant,” said Mr McNally, who urged fleet managers and drivers to appraise vehicle condition up to three months prior to the end of lease termination.

“De-hire damage is the biggest cause of dispute between leasing companies and their customers. Inspecting vehicles 10-12 weeks before end of contract means fleet managers have the opportunity to mitigate end-of-contract damage charges.”

He also urged fleet managers to remind drivers of leased vehicles to ensure cars and vans were serviced in accordance with manufacturer schedules saying it was ‘key to a vehicle retaining its value’.

Finally, he reminded fleet operators that the non-return of keys - both the master key and the ‘slave’ key - was a further ‘significant’ end-of-contract additional charge for fleets.