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The start point for the best source of fleet information |
The bulk of fleet car and van procurement in the UK has historically been carved up between contract hire and outright purchase.
There have been some other alternative funding methods in the corporate sector, but contract hire and outright purchase have dominated, the former taking a larger share of the fleet car market with the latter being more common in the LCV sector.
One of these alternatives has been finance lease and while the vehicle user is subject to some of the same financial risks as ownership, improvements in technology as well as a generally robust used car market have raised the profile of this more flexible option.
ARI Fleet, a global organisation with a significant presence in fleet management in the UK, is reporting a great deal of interest in its finance lease product, admitting that even a couple of years ago it was sometimes difficult to start that conversation with customers.
ARI UK managing director Nick Caller says: "Covid required many fleet managers to review what their fleets look like. When the pandemic hit, there was a level of uncertainty for everyone, and I think an element of that still remains now.
"Our product proved to be where the majority of the customers who were approaching us wanted it to be, and just afforded them so much more flexibility."
Caller also reports that 2020 was the company's best year for growth in funding, but the reasons for businesses re-evaluating their vehicle use are farther reaching than the Covid-19 pandemic.
"It wasn't just Covid that made people start to re-evaluate what they were looking for, it's the EV agenda too," says Caller.
"There is still a place for contract hire in the market place and there will be indefinitely. But there are many uncertainties and unknowns, causing some to look for greater flexibility.
"Some may already have contract hire with other companies and want to move to EV, but maybe not ready to do it immediately.
"They tell us 'We would like to do it in the next four years and we're not ready to just yet, and don't want to go into a new contract hire agreement,' to which they're ostensibly locked into for three or four years, or pay penalties to terminate early. They want more flexibility."
Caller says the main concerns some had around the risks associated with finance lease have largely fallen away.
He says: "With our portfolio management and business analytics data, we can now help people decide the optimum time in a vehicle life cycle to change it [in a way] that most benefits the customer, taking account of their user profile and other factors.
"Every customer is different. I've been in this industry around 18 months and even in that short time I've noticed a change in the conversations we've been having with customers.
"Covid was a catalyst for a lot of that, but it opened people's minds to change. EVs are growing well and that will continue. For me, the whole EV and alternative fuels agenda will be uncertain for a number of years, whether it's new developments in manufacturing or changes in legislation.
"There isn't great clarity any more, so if we look at what the total available market is for us, we think it could continue to increase. It allows us to serve our customers in the way they want to be served.
We're creating more of an opportunity from an area that used to be a risk. When we dispose of those vehicles, they benefit if we can find that optimal time in that data curve. It could be month 27 or some other point during the life cycle, based on the residual value and the user profile."
He reports that some of the changes enforced by lockdowns have not been uniform across ARI's customer base.
"There has been a yo-yo effect," says Caller. "With some customers standing down all vehicles, but many of our customers provide essential services and have seen use increase.
"There has been great variation on mileage and that has a big impact on residual values. Our lives have all changed.
"God forbid there's another pandemic several years down the line. We don't want that, but it could happen. Businesses have to be capable of adapting and I think our product allows them to do that. When this started, it was a hard sell persuading customers that finance lease was better for them than contract hire, but that has changed.
"We have had a number of unsolicited approaches, whether from incumbent customers or new and it's a conversation they now want to engage in. Maybe 18-24 months ago it was almost an uphill battle to start that conversation, but now there has been a change of mindset."
Caller says ARI supports around two million vehicles globally, with around 100,000 of those in the UK. Some of these are fleet management customers or choose another of ARI's products.
He adds: "We handle a lot of data and we can identify trends such as costs being likely to increase after a certain point on a particular car.
"From a TCO point of view, it's a no-brainer for customers. They benefit entirely from the residual value - we don't retain any of that - and we can help keep their costs down.
"I'm not for one minute suggesting contract hire doesn't have a place - of course it does - but there are more opportunities with finance lease as well as the opportunity for our number of customers to grow."
While the rapid proliferation of electric cars and vans in the new vehicle market has required a great deal of education for customers, the used car market has been extremely resilient, especially throughout the pandemic.
"I think the situation we've had with strengthening resale values for used cars will continue," says Caller. "There will be a place for an internal combustion engine on the used car market for many years."
Finance lease transfers some of the risks associated with running the vehicle to the company using it, including the residual value, while ownership remains with the finance company. The user pays a monthly rental, but at the end of the lease risks a shortfall in vehicle value if used prices are weaker than anticipated. But improvements in data and technology can help pinpoint the optimum time in the vehicle life cycle to maximise its return, whether the resale value is higher than originally predicted or ahead of some significance maintenance cost. The user then benefits from the savings.
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