Although nowadays significantly fewer companies purchase their cars rather than taking the leasing route, which in most respects is a far simpler option, there are still companies that do. Why is this? Well in some cases a company is cash rich and sees no point in using any form of finance for their company vehicles. In a minority of cases it can be that the company cars are going to be doing such high mileage, that purchasing appears more attractive.
However for the majority of companies leasing or contract hire as it is more commonly known is a far more practical option. Owning a car introduces a lot of unknown factors into a companies finances; the main uncertainty being what is it going to be worth when they come to dispose of it?
There are lots of guides to future values such as CAP but will the vehicle be worth what they are predicting in three years time? The difficulty for CAP is that they can only make assumptions based on what they know. They cannot take into account a sudden deterioration in the economy or things like the 2008 fuel cost shock.
The same applies to leasing companies; they try to take everything into account when it comes to residual values. Sometimes they get it right and on other occasions they suffer huge losses. So why don't they build a large margin into the price to allow for what may lay around the corner and hit residual values? The answer is simple; the contract hire market is such a competitive business that they cannot do this and still retain market share, the market is very price sensitive.
If a company owns its cars rather than contract hiring them, it is when it comes to dispose of the vehicles, that there is most disruption to staff time; having to advertise and prepare the vehicle for sale and deal with prospective purchasers, or alternatively the financial loss of having to dispose of cars through the trade and accept a significantly lower price.
There can be a lot of comfort in having fully budgeted motoring costs; knowing at the outset what a vehicle is going to cost, right down to the last penny, which is just not possible when purchasing a vehicle.
It is astonishing that companies will invest something approaching 500,000 in a fleet no more than thirty cars. Some companies that buy their vehicles do use some form of car finance; finance lease or rather less popular now, hire purchase but the concerns with regard to future values remain.
Taking into account the considerable advantages of contract hire it is not surprising that increasingly companies are opting for this method of acquiring company vehicles. When it comes to financial planning it stands head and shoulders above vehicle purchase and when a maintenance contract is added, it can significantly reduce the amount of staff time that is spent managing the company car fleet.
However for the majority of companies leasing or contract hire as it is more commonly known is a far more practical option. Owning a car introduces a lot of unknown factors into a companies finances; the main uncertainty being what is it going to be worth when they come to dispose of it?
There are lots of guides to future values such as CAP but will the vehicle be worth what they are predicting in three years time? The difficulty for CAP is that they can only make assumptions based on what they know. They cannot take into account a sudden deterioration in the economy or things like the 2008 fuel cost shock.
The same applies to leasing companies; they try to take everything into account when it comes to residual values. Sometimes they get it right and on other occasions they suffer huge losses. So why don't they build a large margin into the price to allow for what may lay around the corner and hit residual values? The answer is simple; the contract hire market is such a competitive business that they cannot do this and still retain market share, the market is very price sensitive.
If a company owns its cars rather than contract hiring them, it is when it comes to dispose of the vehicles, that there is most disruption to staff time; having to advertise and prepare the vehicle for sale and deal with prospective purchasers, or alternatively the financial loss of having to dispose of cars through the trade and accept a significantly lower price.
There can be a lot of comfort in having fully budgeted motoring costs; knowing at the outset what a vehicle is going to cost, right down to the last penny, which is just not possible when purchasing a vehicle.
It is astonishing that companies will invest something approaching 500,000 in a fleet no more than thirty cars. Some companies that buy their vehicles do use some form of car finance; finance lease or rather less popular now, hire purchase but the concerns with regard to future values remain.
Taking into account the considerable advantages of contract hire it is not surprising that increasingly companies are opting for this method of acquiring company vehicles. When it comes to financial planning it stands head and shoulders above vehicle purchase and when a maintenance contract is added, it can significantly reduce the amount of staff time that is spent managing the company car fleet.
About the Author:
Should you have any queries or questions with regard to Fleet Management, Licence checking, Contract Hire, Personal Contract Hire, Lease Purchase or vehicle Hire Purchase, please do not hesitate to contact us. Bowater Price plc 01494 536 536. www.bowaterprice.com.
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