should you
lease or
purchase
your company
vehicles?
Should you lease or purchase your company fleet?
Introduction
81%
of commercial vehicles
can be classified as
business criticali
As the UK economy continues to recover from a global recession, many businesses are still keeping
a close eye on their budgets. The country has been hit by rising inflation and a fall in consumer
confidence, causing company directors to be cautious about spending, and a number of banks to
cut back on their lending. This poses a challenge for fleet managers looking to grow and update their
fleet of company vehicles – an important part of smooth business operation. Whether they’re being
used for deliveries, driving for meetings, or simply commuting back and forth to work, company
vehicles are essential and fleet drivers depend on them to do their jobs.
So what does this mean for fleet managers looking for financial help to develop their fleets?
If acquiring new vehicles is essential for fleet growth and business progression, you need to consider
all the options before you make a decision. More and more companies are starting to understand
the benefits leasing has to offer, and “should I lease or buy?” is a common question being asked by
fleet managers.
i. http://www.lexautolease.co.uk/assets/Company_Motoring_interactive.pdf
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Should you lease or purchase your company fleet?
This guide explains the pros
and cons of leasing compared with
purchasing, to help you understand the
differences and make the right decision
for you and your business.
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Should you lease or purchase your company fleet?
Purchase funding options
The average new car will lose
20% of its value IN each
of its first three years
of use due to depreciationii
Depending on the type of business you have, you may require anything from a single vehicle to a
large fleet. Whatever the scenario, if your business needs vehicles and you choose to purchase them
from new, you will need to secure the initial capital required to buy them outright. Depending on the
number of vehicles in your fleet, the amount needed can be substantial. In this situation, you have
two options.
Firstly, you can speak to your company’s board, and ask them to dedicate a portion of the annual
budget to fleet growth. As many companies continue to recover from the effects of the recession,
it’s likely that your board will be unwilling to support such a request, especially when it involves such
large sums of money.
The second option is asking the bank directly for a loan. Although the economy may be recovering,
banks continue to be cautious about lending and this option may involve careful scrutiny of your
business. For these reasons, getting the large capital outlay required for growing your fleet by
purchasing new vehicles may be trickier than you first thought.
Another financial consideration relating to purchasing new vehicles is depreciation. All new vehicles
lose their value incredibly quickly and when you come to sell or trade it in, you may be met with an
unpleasant surprise. This is especially an issue in today’s economic climate, as the average price of
second-hand cars may fluctuate.
ii. http://www.theaa.com/motoring_advice/car-buyers-guide/cbg_depreciation.html
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Should you lease or purchase your company fleet?
Additional expenses
Most fully comprehensive
motor insurance policies only
offer ‘new car/van replacement’
for the FIRST 12 MONTHS
OF OWNERSHIP iii
As well as the initial capital required when you’re purchasing a new vehicle(s), there are a number of
additional costs you’ll need to budget for throughout ownership. As you’ve purchased the vehicles,
they are now your responsibility.
Firstly, you’ll need to cover ongoing maintenance costs. These include annual and scheduled services,
and things like brake fluid replacement and clutch repair. As cars get older they become more
susceptible to damage, meaning you’re likely to have higher maintenance costs for general wear
and tear items.
You’ll also need to cover the cost of annual MOTs for all your vehicles. 25% of businesses with
company-owned vehicles failed an MOT last year, racking up £350 million in repair billsiv.
Roadside breakdown will also need to be organised, as you have a duty of care to ensure your
employees are safe and will be picked up in the event of a breakdown. In the event of an accident,
it’s also likely that you’ll only be covered for ‘new vehicle replacement’ for the first 12 months of
vehicle ownership. When it’s time to replace your vehicle, selling, trading in or otherwise
disposing of the asset will also be your responsibility.
Another thing to consider is the likelihood that you may not be able to afford a fleet that’s as
prestigious and modern as if you were leasing, due to the expenses involved with the initial
capital outlay.
iii. https://www.moneyadviceservice.org.uk/en/articles/do-you-need-gap-insurance
iv. http://www.jaama.com/en/Blog-UK/25-of-sme-vehicles-have-failed-an-mot.html
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Should you lease or purchase your company fleet?
An alternative option
The deposit (initial payment) for
contract hire is usually around
3x the monthly payment v
If you’re unable to secure the large capital outlay required for purchasing new cars, there is an
alternative, thats where Free2Move Lease comes in. Contract hire is an agreement where you lease
the use of vehicles from a company for a fixed period of time, generally 2-3 years. There is no large
capital outlay as you generally only pay 3 times the rental cost. So, there’s no need for you to speak
to the board or a bank about securing a loan, as it’s a much smaller amount needed in the first place.
You then make small, regular monthly payments for the duration of the agreement, and at the end of
the contractual period the vehicle is returned to the leasing company.
More and more organisations, particularly in the current economy, are attracted by this idea of fixed,
manageable motoring costs. Leasing is an effective way to manage risks involved with a fleet, such as
depreciation costs and repair bills, as the leasing company deal with this.
Smaller, regular payments instead of one lump sum will also have less impact on business cash flow
than if you were purchasing the cars outright. It’s a hassle-free approach to the financial tasks often
associated with fleet management, and offers you the reassurance of being able to predict what can
often be a volatile business expense.
v. http://www.vesource.co.uk/leasing-information/go/page/benefits-of-car-leasing
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Should you lease or purchase your company fleet?
Additional benefits of leasing
The average hourly rate
of a garage mechanic’s time
now stands at £74.33 vi
As well as the positive financial aspects of leasing, there are also a number of additional benefits
relating to maintenance and repairs that can help your fleet. When you partner with an industry-leading
leasing company such as Free2Move Lease, you’ll receive access to a comprehensive care program that
includes roadside assistance, scheduled servicing, annual services and periodic maintenance.
As you’ll be changing your vehicles on average every 3 years, it’s likely you’ll update them before they
require an MOT so you’ll avoid this cost altogether. The wear and tear replacement service provided
by your fleet vehicle supplier will include the replacement of friction items such as brake pads, discs,
wiper blades and clutches, as and when needed.
On a wider scale, your fleet vehicles will also receive roadside assistance, at home assistance
and recovery. You’ll also receive comprehensive accident management with quick and efficient
service, in the unlikely event of an accident.
Another benefit of lease vehicles is that with an average age of 18 months, they’re generally safer,
more reliable, more fuel-efficient and less polluting than purchased fleet cars (average age of over
six years.) With vehicle emissions now forming a key part of many businesses’ carbon footprint, it’s
unsurprising that fleets are often the first area to be targeted. Leasing vehicles allows you to offer
your employees the most environmentally friendly options for their requirements. And the statistics
speak for themselves, with CO2 emissions of leased fleets falling by 17% in the last five years, and
emissions now 8g/km below the UK’s average for new vehiclesvii.
vi. http://www.thisismoney.co.uk/money/cars/article-2655078/Garage-repair-labour-rates-hit-jaw-dropping-record-highs.html
vii. http://fleetworld.co.uk/fleet-co2-emissions-now-8gkm-below-uk-average-for-new-cars/
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Should you lease or purchase your company fleet?
Benefits to your wider business
20% of managers involved in
running fleets say the amount
OF time spent on
administration has
increased in the last
12 months viii
As well as financial benefits and ease of maintenance, leasing your fleet will also have a positive effect
on your wider business.
Firstly, having the opportunity to drive a new vehicle every three years or so will boost driver
morale and enhance the experience your employees have within your company. Investing in
quality, prestigious vehicles will also reflect positively on your brand image, and could help move
your business to the next level. If drivers are arriving at meetings in the latest car and van models
rather than a mismatched fleet, customers and clients are likely to be impressed. As we’ve mentioned
before, newer vehicles are also more reliable, meaning company time wasted with repairs and
breakdownsis minimised.
But perhaps the biggest benefit of leasing is the peace of mind you’ll receive from your chosen
leasing company. For many fleet managers, the daily management and administration can mean
time taken away from more important tasks. However, if you partner with an industry-leading leasing
company, they’ll take care of all the important things for you. This means jobs such as organising
annual services will be in someone else’s hands, leaving you free to focus on other areas of your
business, and the things that are really important. With a recent survey revealing 84% of fleet
managers say management information is important to them, constant updates on the status of
your fleet is sure to be beneficial to your businessix.
viii. http://www.fleetnews.co.uk/news/2015/3/10/fleet-administration-time-has-increased-in-last-12-months-say-one-in-five-managers/55095/
ix. http://www.lexautolease.co.uk/assets/Company_Motoring_interactive.pdf
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Should you lease or purchase your company fleet?
CONCLUSION
It’s clear there’s a lot to think about when making the decision to purchase or lease your fleet.
As mentioned earlier, in today’s economic climate companies can’t afford to spend large amounts
of cash on capital assets that aren’t business-critical. Purchasing vehicles means you own them,
and they’re your responsibility. This means any costs relating to the upkeep of the vehicle, be it
maintenance, servicing or other costs, will come directly out of your budget. Depending on the
number of vehicles in your fleet, these outgoings can easily mount up and become unmanageable.
On the other hand, choosing to lease your fleet will offer you an inclusive maintenance plan to cover
all aspects of vehicle upkeep. As well as freeing up valuable time to focus on other business areas,
this also gives you peace of mind should anything go wrong with your fleet as all expenses are
included in your manageable monthly payments.
By partnering with an industry-leading leasing company, you’ll avoid the need for large capital
outlay at a time when it can be difficult to secure. You’ll also boost your brand image and have
more time to focus on company growth and development, meaning your business will reap the
benefits in the long run.
So, whether it’s for a single vehicle or a whole new fleet, Free2Move Lease can provide you with a
number of flexible and affordable finance options that will suit your unique circumstances.
For more information on how Free2Move
Lease can help you find a suitable finance
package that suits your business’ needs, call
one of our experts now on 0345 319 1017 or
email [email protected]
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