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Extending car contracts can raise running costs

Date: 08 October 2012   |   Author: Jack Carfrae

BMW 320d Efficient Dynamics saloon (109g/km)

Extending company car contracts past their renewal date is often a "false economy" and can raise the cost of running a business vehicle.

That's the advice from GE Capital's fleet arm, which has crunched the numbers to prove that informally extending leases is more costly than buying into a new contract.

Gary Killeen, GE's fleet services commercial leader, claims that this is not the same as the culture among company car drivers to extend their contracts over job security fears during the 2008-9 recession: "Then, companies were battening down the hatches in response to an economic storm.

"The 'renewal apathy' that we are seeing now is a milder form of caution prompted by much milder economic uncertainty.

"However, this tendency to let a renewal slide in the belief that it will save a few pounds is often a false economy. If you do the maths, a new car is often the more cost-effective choice."

The firm's calculations - based on a driver running a 2008 BMW 320d Efficient Dynamics vs a 2012 model for four years and 80,000 miles - reveal that investing in a new vehicle works out at £130 a year less for employers and £435 a year cheaper for employees.

Killeen continued: "Much of this is due to the impact that new car technology is having when it comes to cutting fuel consumption and reducing CO2.

"This means that, across most of the company car market, opting for a carefully chosen new vehicle will be the cheaper option in many, many cases."

He said that much of the problem was the perception by businesses and drivers that they are playing it safe by hanging onto a vehicle for slightly longer, rather than accepting the factual and financial reality: "It's natural to believe that if you forego something you want you are helping minimise cost.

"Employers who stop replacing company cars and drivers who stay in their old car for longer feel as though they are making a sacrifice at a point in time when the economic winds feel a little chilly, whatever the underlying finances."

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