Why leasing is more attractive than buying when it comes to fleet management
BNP Paribas Leasing Solutions UK CEO, Jean-Michel Boyer, speaks to The Telegraph on fleet management and why leasing is more attractive in some circumstances than buying.
To buy or not to buy, that is the question. Over the past decade, the debate has raged with increasing intensity about whether purchasing commercial vehicle fleets outright or leasing them makes the best business sense. And while traditionalists may still favour the former approach, the balance appears to be tipping towards the latter.
Certainly, the most recent statistics generated by The British Vehicle Rental and Leasing Association (BVRLA), the trade body for the sector, highlight the trend for business leaders to opt for leased fleets. The BVRLA represents more than 900 members – who all have to adhere to a code of conduct, which ensures the highest levels of professionalism – and its Q4 2016 survey indicated the business car-and-van leasing fleet enjoyed a notable 6.6pc year-on-year growth.
“Those numbers comprised a 3.6pc growth in the number of cars, and a 16.2pc increase in the number of vans,” says BVRLA chief executive Gerry Keaney. “And much of the growth in popularity is down to the fact that a new audience of SMEs are jumping aboard.
“Leasing has financial, administrative and operational benefits for businesses, as they can outsource difficult tasks to experienced, dedicated professionals – plus leasing companies are providing customers with access to affordable vehicle finance schemes.”
“Leasing agreements allow businesses to pay VAT on the rental amount, rather than the purchase price” Jean-Michel Boyer, CEO, BNP Paribas Leasing Solutions UK
“Cash is the lifeblood of a business, and buying a vehicle ties up capital in a depreciating asset when it could be invested elsewhere in the business. Many business owners prefer the idea of paying for their transport needs in smaller, fixed, regular instalments rather than one large, upfront sum. Due to their impressive buying power, leasing companies can provide competitive monthly rates.”
Jean-Michel Boyer, chief executive of BNP Paribas Leasing Solutions UK, agrees. “When a commercial vehicle is purchased outright, it immediately loses value,” he says. “An entire fleet which is bought loses value en masse. It’s an inefficient use of cash which for any business – whether it’s an SME or multinational conglomerate – is undoubtedly better spent elsewhere.
“By exchanging large upfront payments for manageable, fixed-term rental instalments over 12 to 60 months, businesses can stay cash-flow positive over both the short and long term. Thanks to predictable costs, businesses can also budget more accurately, and with minimal risk.”
There are other less obvious financial pluses to not purchasing a fleet outright, according to Mr Boyer. “Leasing is – quite literally – less taxing than buying,” he continues. “When someone buys a single commercial vehicle, they must pay 20pc VAT upfront, which can amount to a significant expense for smaller businesses. If you’re buying a fleet of vehicles, these expenses are multiplied.
“By comparison, leasing agreements allow businesses to pay VAT on the rental amount, rather than the purchase price. Asset repayments in a leasing agreement also count as a business expense, resulting in even greater tax efficiency.”
”Leasing lets businesses access the very latest technology without breaking the bank” Jean-Michel Boyer, CEO, BNP Paribas Leasing Solutions UK
Another key factor is that leasing removes the hassle of maintenance. And with technology advancing at speed, why wouldn’t business owners select a modern vehicle with all the latest capabilities that can be upgraded in a couple of years, rather than buying a van or car and having to take a hit on resale when it becomes outdated?
“Contract hire leasing agreements can roll up maintenance costs so that instead of chasing down vehicles for safety inspections, companies can hand over responsibility to a professional organisation,” says Mr Boyer. “Vehicles are becoming more technically complicated and in turn the need for industry-focused support levels have increased, creating an added incentive to pass this responsibility on.
“And, as commercial vehicle sophistication evolves, leasing also provides businesses with the ideal way to access the very latest technology without breaking the bank. Leasing agreements will typically offer flexible end-of-term options, meaning businesses have the ability to upgrade to the latest model without hassle.”
Mr Keaney, offering hope to those lumbered with paid-for vehicles, adds: “SMEs benefit from access to modern, fuel-efficient vehicles every three to four years. If an SME currently has bought vehicles, leasing companies can arrange a sale-and-leaseback deal to convert the entire fleet of owned vehicles to a lease arrangement.”
The BVRLA’s Guide to Vehicle Funding can help businesses choose the most appropriate solution for their circumstances, and a number of the larger manufacturers, including Renault, offer their own financial packages: contract hire; hire purchase; finance lease; and lease purchase.
Given this welter of information, a more appropriate question, then, is: to lease, or not to lease. No prizes for working out the most obvious answer.