The logic of leasing is simple when you see your car as another business tool, and realise that you don’t need to own it to use or enjoy it.
It’s logic that increasingly has organisations handing over their fleet management to leasing management firms. The reasons are both financial and operational.
“On the financial side, leasing removes an asset from the balance sheet, thus improving some performance ratios like return on equity,” says Leaseplan’s managing director Charles Willmer.
“Leasing also provides niche credit line. For instance, when looking at financing business, you’ll have core funding lines and niche credit lines.
“Core funding lines will be things like the share capital and day-to-day loans, but you may look for little bits here and there and the lease can look after that.
“So overall, you’ll get better budgeting because depreciation is fixed over period, and you’ll know what the costs are.”
It’s no-surprises type package because all these things are upfront, he adds.
“The three risks with any car or fleet, such as second hand value, operating costs and interest rates are all managed by using lease.
“And this means business planning is easier in one particular part of the business, and this is particularly useful when ?no surprises’ is the current war cry for companies.
“The final point is that when you take into account the economies of scale in purchasing car, and the cash flow benefit that lease provides, it normally ends up cheaper than buying.
“For instance, if you need 15 percent return on capital and leasing costs you 10 percent interest, then you’re ahead straight off.
“If the lease company can buy the unit for couple of grand cheaper, then you’re ahead.”
Another area where leasing companies are developing expertise is in the operational side of fleet management. This let’s you as client, step back from running your vehicle fleet in all areas from fuel to parking infringements, and focus on your core business. It’s core competency area.
“For instance,” says Willmer, “if you get parking infringement, the transport authority will contact us as the owner, and we’ll do the administrative work through our reporting structure. We will of course know who the driver is.”
He says they’re unusual in this respect because many leasing firms just cover maintenance, registration, tyres, or provide another car if their leased one is off the road.
“We do the full outsourcing. So if you have an accident or get speeding ticket we handle it, if you lose your fuel card, you call Leaseplan. If you want to know anything about running the fleet you can tap into the internet reporting system.
“We’re more of fleet manager. We come to the industry from the management perspective – it’s part of adding value to the leasing side.
“So the operational benefits provided are expertise, economies through scale, outsourcing of administration – those are the three areas.
“So, how far you want to take the job is the differentiation between leasing firms.”
Own your own fleet and outsource
Companies can still own their fleet, and take the outsourcing benefit.
“You could own 10 cars but not have the worry about looking after them. We would buy them for you, and we invoice you for the cost of the car rather than the lease, and we do the other fleet management activities.
“We’ve been down these roads in 26 countries with 1.2 billion cars over the years.”
Leasing moves forward
Willmer says that 30 percent of all new corporate vehicles are put onto operating leases these days “and we don’t see much slowing of this on the way to 50 percent. So the market is reasonably healthy”.
“Certainly Government is coming round to this way of thinking – as means to get efficiencies.”
He estimates you need around 15-20 plus vehicles to get the advantages of the full range of services.
“But you need to look at it in your own company perspective, but that doesn’t mean every company with five cars or less shouldn’t be leasing. If you have two cars then leasing probably still has advantages but if you’re going to completely outsource and manage, you need to be running 15-20 cars plus.”
While leasing to individuals is big business in the United States, because the company car isn’t as prevalent as here, it’s not taken off for the average Kiwi yet.
“Growth in personal leasing is there, but where it’s being driven from is companies providing cash as opposed to cars.
“For instance, where they identify non-essential vehicle users in the firm and say why provide cars, just give them cash. That then puts lot of private buyers as it were, into the market – but certainly not on the fully maintained corporate type lease.”
Leasing In Action
A big leased fleet with hundreds of vehicles and drivers calls for very special relationship between the lease company and client. LeasePlan has 360 vehicles with Health Waikato, the public hospital and health administrator for the Waikato, Coromandel and part of the King Country.
Says LeasePlan managing director Charles Willmer, “One of the most popular things we’ve done for this client is set up user council. It’s bit like quality control circle. number of the drivers of the vehicles meet with LeasePlan’s on-site client service manager and other LeasePlan representatives on regular basis. The world is not perfect, and there will always be few problems to be sorted out. But the big thing here is that the dialogue is regular, open and effective. Health Waikato tell us that’s major factor in the quality of the relationship and who could disagree?”
Health Waikato decided to switch from wholly owned fleet to leased and managed fleet about five years ago. The organisation had found that the purchase, maintenance and disposal of fleet vehicles was tying up too much executive and staff time, with the added overheads of three mechanical workshops to consider. LeasePlan won the business and provides, maintains and reports on each vehicle, downloading the status of each unit from its own computer system to that of the client.
Another LeasePlan client is Glaxo Wellcome. That company decided to switch from ownership to leasing because it wanted to make its remuneration packages more flexible in order to attract top staff in the pharmaceutical industry. Within certain guidelines as to brand and style of vehicle, the company wanted to offer executives vehicle of whatever type and value they wished, the payments being taken out of the executive’s grossed-up package. This was rather too complex for the company itself to consider continuing to administer.
Another LeasePlan client, Montana Wines, is happy to lease because the vehicle inventory is then off balance sheet, which in an ever-changing and dynamic industry such as theirs, means one thing less for accountants to worry about when what matters to shareholders and potential partners is the company’s core business and the specialist plant, machinery and property assets related to that.
LeasePlan, multinational lease and fleet management company with half million vehicles on the road globally, is wholly owned subsidiary of the Dutch Bank ABN Amro.