Since the Global Financial Crisis, Kiwi companies have had to think fast and come up with creative ways of reducing costs. In terms of leasing this has meant either selling up and leasing back or simply switching to more economical arrangement or choice of vehicle, all while maintaining an image in line with how they want to be perceived by their customers.
Toyota business development executive Darren White says the Toyota hybrid Camry is more in demand than ever before, as is the Prius, both of which are cost effective and environmentally friendly.
“About five years ago we started to see change in the way people were looking at cars, but it’s only been in the last couple of years that they’ve consciously made the decision to move towards smaller vehicles,” says White.
“There’s far more awareness out there and customers want to make sure their suppliers are doing the right thing. Our customers ask us what we’re doing around sustainability often because they’re being asked the same question by their customers.”
The latest model Prius has fuel consumption of 3.9 litres per 100 kilometres, the best fuel economy of any mass produced car and emits 89 grams of CO2 per kilometre travelled, while the hybrid Camry produces 142 grams per kilometre of CO2 and fuel consumption is six litres per 100 kilometres travelled.
Honda New Zealand managing director Graeme Seymour says it’s clear the eco-friendly trend is growing. Right now Honda’s most popular leased vehicle is the Insight hybrid, car that costs around 40 percent less to run than standard sized car.
“There’s definitely drift towards smaller and more fuel-efficient cars,” says Seymour. “Businesses these days are much more cost conscious than they used to be, but also more socially responsible. They’re having to make conscious effort to reduce their footprint and at the same time cut costs.”
ORIX national sales director Natalie Milicich says that even though New Zealand businesses are still suffering the effects of the Global Financial Crisis they’re not afraid to show it. In fact, they’re using their fleet to project more conservative image.
“Smaller vehicles are more fuel efficient but lot of the time it’s about image,” she says. “They want people to know they’re not making millions of dollars anymore. They want to put the message out there that they’re being more conservative.”
She says these days more companies are choosing to lease medium-size SUVs rather than the old favourites like the V6, Holden Commodore and Ford Falcon, for longer period of time. And longer periods mean leasing companies are reaping the benefits.
“The leasing market has actually improved during the recession. Some companies have gone from ownership to leasing, because they realised they don’t want money tied up in vehicles. Rather than spending $40,000 on car, they’re more willing to pay $700-$800 month on lease.”
GE Capital New Zealand general manager Mitchel Booth says the leasing industry enjoyed boost during the recession as companies looked at ways to inject cash back into their business.
“As things got tougher naturally credit lines were not as available as they used to be in more liquid environment so companies who owned their vehicles began to consider leasing as way to free up their traditional funding lines for capital cash flow,” Booth says. “We saw much more of trend towards leasing than we had done historically.”
He said it was at the very start of the financial crisis that clients began to look towards smaller cars to reduce costs.
“Initially, through that recession period, the cost was bigger driver for moving into smaller vehicles over environmental reasons,” said Booth. “Just recently though, we’ve started to see the green issues become more of factor in leasing with new tenders. They know there will eventually be written legislative requirements around reducing carbon emissions so everyone will be looking at that from business perspective soon. It’s theme that I don’t think is going to go away. It’s here for the long-term and it will be kneaded into long-term business operations.”
Booth says he’s definitely noticed trend towards long-term leasing over the past two years.
“We looked at restructuring some leases and we certainly saw trend to longer term leases to save money,” he says.
By moving from 36-month term, which used to be the traditional leasing tender, to 45-month agreement, the maximum term for an off-balance sheet operating lease, businesses have been able to cut costs with lower lease rates.
BMW New Zealand’s corporate communications manager Edward Finn says its most popular arrangement is three-year, 45,000 kilometre operating lease, which aligns with the three-year servicing arrangement.
“This effectively ensures peace of mind for the full duration of the lease agreement,” says Finn.
A new development in BMW leasing is BMW and MINI Select, finance option available on all MINI, BMW xDrive and BMW 5 Series models. It will be extended to include other new models in the BMW range as they are launched.
“The Select programme offers BMW and MINI customers flexibility and
security when financing their vehicle as it provides Guaranteed Minimum Future Value at the end of their term,” says Finn. “Options then include refinancing their car or buying out the contract, trading in or simply returning the vehicle.”
GE Capital’s Booth says another trend has seen clients move towards sale leaseback.
“Some customers have had to consider other funding lines like sale leaseback which is where customer might have owned their fleet historically but now outsource to fleet management provider. We’ll take ownership and lease the cars back to that customer where they realise the equity in that fleet of cars and project it into the business. We’re seeing more opportunities to do that and certainly lot more interest from customers as well.”
Other businesses have had to review the risk associated with spend on repairs and maintenance meaning many are seeking fully maintained leasing arrangements or attaching fleet management service to non-maintained lease.
“Fleet management means the company owns its vehicles and we manage them,” says Booth. “They still get the advantages of our buying power, our fleet management expertise and our systems so they can better utilise their fleet.”
FleetPartners director of sales and marketing Barry Nicholson says its fully maintained operating lease is the most popular option right now.
“Little things like maintenance costs and labour rates that we factor into our fully maintained operating lease – that’s where the savings are,” he says. “We’ve seen more customers becoming aware of that and looking at it as an option as opposed to the old non-maintained operating lease. Now around 80 percent of our clients choose the fully maintained operating lease.”
Nicholson adds that since the recession FleetPartners has had to look at how it can add more value to its customers so it has had to develop the fleet management side of its business to drive costs out. “We’ve had to go further into our customer’s business and become more of consultancy around formulating vehicle policies that align to their business vision and values and how that interacts with all areas of their business. We’re going in and actually streamlining processes and creating policies. That’s definitely evolved since the global recession.”
As future predictions, Nicholson says he expects Toyota will continue going strong.
“Toyota is generally strong lease vehicle due to their range of product and can accommodate vehicle policy quite easily, as are Ford, Holden and Hyundai,” he says. “Suzuki Swift is very popular lease model and star for their marque, as is Navara for Nissan.” M
Hayley Barnett is writer-at-large for Mediaweb.
