Vehicle Leasing: Turbo-charged savings Why fleet leasing makes sense

After quite savage rationalisation of vehicle fleets during the global financial crisis (GFC), leasing companies report business has stabilised over the past two years, and this year there are even signs of modest upturn.
“Normally one of the first targets for CEO or financial controller is how they can make their fleet run more efficiently. Certainly through 2009 and 2010 there was big focus on cost reduction in businesses,” says Mitchel Booth, general manager of GE Custom Fleet. “However, we are seeing car sales up this year, signal that perhaps there’s bit of confidence returning to the economy. Companies are putting on new sales people and new employees or they are new businesses starting up, and they require company cars.”
Nigel Bell-Booth, sales manager for Orix, says during the GFC some businesses chose to go to fleet ownership, while others, particularly in the small business area, chose either to keep existing vehicles longer than usual, then purchase them, or to rationalise their fleet policy quite strictly.
“It really depends on the individual business and how they’re tracking. lot of our traditional clients have continued to lease – it’s very effective use of company funds in terms of running motor vehicle fleet.”
However, Alan Roberts, general manager of Fleet Smart, believes companies are moving back to vehicle ownership because of freed up capital, low lending rates from banks to assist cash flow, and pending changes to the financial reporting regulations whereby leasing of any type or value will need to be listed on the balance sheet as liability.
The vast majority of vehicle leases are fully maintained operating leases. As Booth points out, under such agreements companies know what their costs are going to be every month, don’t have to worry about maintenance, depreciation or disposal, and the fixed monthly price provides cover for virtually all the likely risks, combining value, surety of cost and peace of mind as well. However, where leased vehicle was once just that and no more, vehicle leasing companies are now looking to add real value to the package. ‘Whole-of-life cost’ is the catch cry.
“Most companies now use more sophisticated model in terms of picking their vehicles. They’re looking at the total operating cost for their vehicle, incorporating the lease rate, maintenance (which is normally incorporated in the lease rate), estimated fuel costs over the course of the lease, and FBT as tool to help them decide on the type of vehicle,” says Bell-Booth.
Larger leasing companies can often pass on the benefits of bulk buying discounts and service relationships.
Barry Nicholson, director of sales for Fleet Partners, says what’s often overlooked is the amount of time, especially in mid-sized and larger fleets, that it takes to administer vehicle fleet inhouse, processing all the invoices that come through, from the servicing, the tyre suppliers, the insurers, the relief rental cars and others.
“In the ’90s the relationship was just lease rental. Now it’s morphed into ‘add value to my business by recommending better utilisation or reducing costs’,” he says. “Whole-of-life cost is not just about taking the cheapest rental, but drilling down to cents per kilometre, fuel usage, the emissions vehicle gives out, what the maintenance is like, do they service every 10 or 15,000km, what tyres they use, which vehicle holds its value better than others – all that kind of thing is taken into account when we’re devising fleet policies to deliver greater efficiencies.”
It seems most companies are now pretty much resigned to the cost of petrol, but there’s no doubt that rising fuel costs have had major impact on fleet composition.
“In 2008/09 the price for 91 octane reached approximately $2.20 litre and the majority of companies looked to reduce operating expenses and staff costs to offset this,” says Roberts. “Another effect of the fuel pricing at the time saw the market flooded with early lease terminations and the selling off of six and eight cylinder vehicles in favour of smaller four cylinder vehicles. However, we haven’t seen this reaction or anything near it in 2011/12. It could be that the majority of companies have cut operating expenses and staff costs to the bone and there are fewer companies operating six and eight cylinder vehicles, but even so it appears companies and consumers are now somewhat conditioned to fuel pricing at $2.20 per litre.”
Nigel Bell-Booth says large vehicles like the Falcons and Commodores have largely disappeared from the fleet pool. “There are few companies that still use those vehicles but they’ve become management or discretionary vehicles. The vast majority of ‘tools of trade’ fleets, for sales reps and the like, have gone into mid-size and even small vehicles as cost-cutting measure.”
Bell-Booth says even small vehicles today are comfortable and well spec’d, offering features that would only have been found on larger vehicles 20 years ago. Features such as air conditioning, ABS, multi-function displays, iPod connectivity and Bluetooth are now pretty much standard in well priced package, and advanced engine technology sees four-cylinder cars now delivering six-cylinder power with greater fuel economies. lot of companies are taking advantage of that trend to make smarter vehicle choices.
“Particularly during the tightening economy, companies were very aware of how they were perceived by their clients and out in the community. Driving something large that used lot of fuel just wasn’t right so they used the GFC as chance to put their sales reps into something that would fit the company image little better.”
As larger vehicles became less attractive due to fuel price increases, they have suffered very significant downgrade in terms of their second-hand vehicle value. With companies looking for the same usability in package that costs less to buy and to run, mid-sized and small vehicles have become far more popular as second-hand vehicles, and residual values have strengthened as result, changing the way they are viewed from leasing perspective. Today’s mid-sized, mid two litre vehicles give all the comfort, versatility, size and cargo-carrying capacity of large vehicle but with reasonable sized engine that gives much better fuel economy and at considerably better lease rate.
There has also been some belt tightening at senior executive level in terms of high-end lease vehicles, but this depends on the size and type of company, and how well it’s performing.
Geoff Grisdale, sales and marketing manager Euro Rate Leasing, says lot of those leasing “aspirational vehicles” are self employed. In larger companies, having executives driving around in Audis isn’t necessarily the best signal to be sending to the rest of the company when times are tough. While top-end executives have moved into top-end SUVs, most leasing companies report some belt tightening across the board, particularly where staff have lost jobs.
“This is where lot of senior managers have pulled the belt in and said if it’s good enough for you, it’s good enough for me,” says Nicholson.
With today’s focus on smarter asset management, GPS has the potential to add real value to fleet operators.
“There are two reasons people go for GPS technology,” says Nigel Bell-Booth. “One is the big brother approach where they’re looking to monitor their workforce, which doesn’t enhance relationships
between the owner or manager and staff. The other way to look at GPS is in terms of management efficiencies.
“From an exceptions reporting point of view GPS is very helpful – it can tell you how many times month certain vehicle has gone above the speed limit or how many times the vehicle has been stationary for more than 60 minutes during working hours, so you can identify where there are deficiencies in the way staff are driving their vehicles or how they’re conducting their business. However, you’ve got to balance that against the ongoin