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INSIDER: A new lease of life for those expiring contracts

Date: 29 October 2008

The Insider is a fleet manager with years of invaluable experience

At least one business car manager will be keeping his company vehicles for longer as he tries to find some shelter from the economic storm

Since writing about lease extensions last issue I'm hearing about more and more fleet managers who are riding out this financial maelstrom by keeping their cars for a few extra months.

On one hand it makes perfect sense. The near hysteria that's infecting almost everyone these days is not conducive to doing new business. The papers are financial doom-mongering every day of the week, shrieking about our shrinking money markets, property markets, productivity and just about everything else (apart from their sense of self-worth maybe).

Meanwhile the banks have lost that self-confidence that sweeps everyone else along with them and generally makes business easier to conduct. When it's replaced by the sort of cautious stinginess that makes Captain Mainwaring look open-handed, then you know you're in trouble.

It also doesn't help that one of the biggest suppliers of car finance (HBOS) is still in limbo, or at least it was when this was written.

The last thing you want is to be dealing with companies whose very life is umbilically connected to banks; banks with such precarious futures they're scared even to do the one thing they're here for: lend money.

That makes extensions very appealing right now. Sit tight until everyone has figured out exactly what's going on. Rates I've seen offered for identical cars by rival leasing companies are currently all over the place, which suggests no-one really knows what the future holds. In that situation, I think I'll wait until the future has arrived.

The problem with extensions is the extra cost. From my experience, once at the end of the contract, the lease company will either keep the rates the same or even negotiate them higher to off-set their residual hit. Either way they'll be making good money from those extensions, simply because car residuals plateau after three years following a steep decline.

I'm as willing to applaud a bit of enterprise as the next man, but I do think fleets should share in their good fortune. Either by reducing extension rates or offering a little bit of financial candy on future payments, especially when they look certain to rise.

Of course, the human face of lease extensions are the downcast and even mutinous looks on my drivers. Some of them have even done a bit of homework and found some of the ridiculous lease deals out there right now, and very distracting they are too. I'm certainly not going to authorise a Subaru Tribeca (luxury X5-type off-roader thing), even at £200 a month. But even I had to look twice at a Lexus IS220D for about the same price. Then there was the Nissan X-trail diesel at £169, about the same as a diesel VW Polo. However, I'm not getting sucked into choosing unsuitable vehicles just because they're cheap. That's just the sort of meltdown madness I'm paid to avoid.