For Dennis Hesketh, financial controller at property maintenance company Programmed Maintenance Services, selecting the best vehicle lease options for the company’s vehicles was directly related to the performance of the lease provider.
“Before settling on Cardlink some six months ago, our previous providers tended to focus on the leasing of new vehicles,” he says. “We wanted provider that could manage the fleet, and offer greater flexibility of services.”
With in-house fleet management simply not an option, PMS sought independent recommendations from other companies, and was impressed by the professionalism and performance of the lease provider it eventually chose.
“The level of service from the account manager has exceeded my expectations,” admits Hesketh. “They fronted up on time, presented very professional proposal, and have since done everything they said they would.”
PMS has 120-strong fleet and runs operating leases on its sedans and wagons (“which are subject to FBT”), finance leases on vans – while owning outright most of its heavier vehicles. Most leases are for five years or 150,000 kilometres, whichever comes first.
Hesketh believes the future trend is for more proactive fleet management by providers and he predicts the emergence of more exception reporting, which will expose such things as excessive mileage and accident tracking. “The lease providers won’t be just sitting back and passing through costs,” he says.
Less admin, greater productivity
For Hamilton’s Perry Group recent move away from vehicle ownership to leasing has resulted in significantly less fleet administration work for the clerical team and better utilisation of their time for core business duties.
Until late 2003 the company had owned around 90 percent of its 90-strong vehicle fleet, with the other 10 percent leased at the general manager’s discretion.
Leasing is now the preferred option and the key factor in reaching that decision, apart from the freeing up of valuable working capital, was the fixed operating costs, “which means no surprises” according to company accountant Richard Coventry.
Other leasing advantages are based around reduced administration and greater flexibility. “For example, we no longer have to concern ourselves with the selling of vehicles, and if there are staff changes, we can return vehicles accordingly,” says Coventry.
Perry Group works with two lease providers – depending on vehicle type – and recently reached the decision to partner with Esanda FleetPartners after discussions with various lease providers and consulting other like companies.
Again, it was all about relationships – there was little difference in overall cost when comparing apples with apples – however, the level of customer service provided the point of difference.
Perry Group opted for one-year leases while the existing FBT regime remains in place, but plans to review the lease terms before the law is changed (see box story).
Mechanical background helps
You don’t have to have mechanical background to process vehicle maintenance bills, but according to Fisher & Paykel’s fleet manager George Gray (a mechanic by trade), it can certainly work in your favour. Without any automotive knowledge, Gray wonders how some office staff manage to verify accounts, particularly in regard to parts, tyres, and labour costs.
This is one reason why there must be degree of trust with vehicle lease provider, as well as accuracy of documentation and reporting.
Fisher & Paykel’s 12-year association with ORIX is good example of rock-solid relationship. “It’s relationship built not so much with the company, but with the people,” says Gray, who approves of the promptness any potential problems are dealt with by his account manager.
Despite the longevity of the relationship, Fisher & Paykel still checks out the lessor marketplace every two or three years to ensure it is still getting the best deals on its 110 cars, vans, and trucks.
“The most recent time, we signed an independent contractor called Management Toolbox to benchmark our relationship with our vehicle lease provider,” says Gray. “Fortunately it still stacked up.”
Gray believes in leasing from one provider only. His company opted for fully maintained leases and, depending on the mileage of the vehicle, either 36, 42, or 45-month terms. One-year leases have gone out of favour with the uncertainty over FBT. “It’s bit of grey area,” says Gray “and we want to keep everything above board.”
Fisher & Paykel makes the drivers responsible for the servicing, WOF and registration compliance of its vehicles, with general wear and tear covered by the monthly lease.
Fire Service seeks innovation
While fire engines (the ‘red fleet’) remain the property of the New Zealand Fire Service, the ‘white fleet’ is now largely leased. According to the Service’s chief financial officer Brett Warwick, two of the challenges faced in the past with vehicle leasing were that it used combination of leasing companies and most solutions lacked innovation.
“Multiple leasing companies means multiple contracts that have to be managed and each company handles the leasing function slightly differently,” he says.
Now, by operating both maintained and non-maintained leases with one company (LeasePlan) this is no longer an issue.
Warwick says cost will always be key driver. “We always run the ownership versus lease scenarios prior to making the final decision and once this has been done we then look at any other factors which distinguish one company from another. This is where innovation and partnering come into play.”
The Service wanted vehicle-leasing company that worked as partner, not just as financing company. “When looking at companies that are very similar, it is the ‘innovative approach’ taken by the leasing company that is going to make the difference,” says Warwick. “The companies need to look at the way we undertake business and provide solution that complements and enhances this. In addition we were after strong long-term relationship.”
He regards the partnership as win/win situation. “If you do the sums and have the right partner then you can not only have very flexible funding tool for the acquisition of diminishing value assets, but managerially it makes lot of sense.”
FBT and the one-year lease
When comparing the different types of vehicle leases available, it’s easy to find the wording just little confusing – however, most leases fall into the ‘operating’ or ‘finance’ category.
A finance lease means the customer generally keeps the vehicle at the end of the contracted term. Operating leases, both maintained and non-maintained, are popular because the lease payments are tax deductible.
Maintained leases are often the plan of choice as the entire fleet management responsibility is handed over to the provider – maximising the cashflow benefit for the customer. These types of leases can cover everything from driver training to after-hours breakdown assistance.
While lease terms have traditionally been for three years, in more recent times the one-year consecutive lease has become popular, largely due to its FBT benefits.
Over three-year term, fringe benefit tax is calculated on the original market value of the vehicle for the whole term – whereas with one-year term, the FBT value is reduced to reflect the vehicle’s market value each year. So vehicle could be assessed at $50,000 the first year, $30,000 the following year, and $22,000 the third year – quite tax saving when calculated fleet wide.
Not surprisingly, the IRD has seen considerable drop in its car-related FBT revenue, and is keen to plug the loop-hole. The Government is proposing changes to number of areas surrounding FBT, and one specific aim of the IRD is to remove the anomaly of consecutive vehicle leases. The intention is to put owning and leasing vehicles back on similar terms regarding FBT, although this may not take effect until next year. Meantime talk to your
