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The start point for the best source of fleet information |
In these times of gloomy economic forecasts it's imperative that business car managers assess all aspects of running their fleets, and that includes their funding options, writes Rupert Saunders
Here's a simple question for you: how many ways are there of funding your business cars?
I suspect some of you will say "endless" while others might answer "just two - contract hire or outright purchase".
Of course, neither answer is correct. While there might be numerous ways of marketing business car funding, I reckon there are actually five types (although some of them are of marginal benefit): outright purchase, lease purchase, contract purchase, finance lease and contract hire.
I ask the question because as we spend so much time talking about contract hire, it is easy to assume there is no place in the market for the others. And, at a time when every aspect of running a business is being minutely examined, it is surely time to consider your funding options too.
A lot, however, will depend on how your company finances are structured and the type of cars you run.
For instance, leading health club chain LA Fitness has just concluded a major contract purchase agreement with Lombard Vehicle Management (LVM), which not only provides a fleet solution but also enhances the earnings performance of the business. Part of the reason it worked so successfully was that LA Fitness works to US accounting standards.
"Non-contract hire arrangements are relatively uncommon," explained Rob Bailey, head of LVM. "LA Fitness had very specific reasons to opt for a purchase rather than a lease option. That means the vehicles are accounted for on the balance sheet.
"We can provide any kind of funding product but, for the majority of cars in the majority of fleets, contract hire still proves to be the most cost-effective solution when the analysis is done."
At present contract purchase is most commonly used to overcome the corporation tax liability for cars costing over £12,000. At a purchase price approaching £25,000 it is usually cost-effective to choose contract purchase if several cars of that value are being run. Contract purchase is also more common among van fleets, because the VAT reclaim element of contract hire is not relevant.
The forthcoming changes to capital allowances will alter the financial landscape as well, and it is important you understand the consequences.
"With the changes to capital allowances due to come into force next April, coupled with a change in finance allowances, purchase will become less attractive for many because of the much more complex accounting systems," says Gordon Calder-Jones, head of major corporate sales at Masterlease.
"Typically organisations with up to 250 vehicles in their fleet tend to choose contract hire but larger organisations always need to take a holistic view, as a simple one-solution-suits-all approach doesn't work. They often require a raft of different funding for their fleets."
So, while contract hire may be ideal for many businesses, there are certain circumstances where other options might be better. Just make sure you understand what those are, and whether they might apply to you. If you have any doubts, I am sure your current funding company will be only too happy to talk you through it.
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