21st February 2017

Musing over LeasePlan’s recent poll into why many UK SMEs still aren’t making a beeline towards vehicle leasing

Just like the way in which mortgage advisors operate, for example, the majority of the multitude of car leasing companies that have sprung up in the UK in recent years act as brokers, the finance for vehicles leased on business or personal contract hire ultimately arranged by a small group of funders. For anyone with the kind of disposition to gaze at vehicle registration plates in front of them in tedious queues of traffic, names like Hitachi, ALD, Arval and Lex Autolease may ring a bell. LeasePlan, along with its Network brand, is also regarded as one of the key players – and the findings from their research in Q4 2016 left us a little surprised at first1.

Is leasing misunderstood?

After surveying 506 UK business decision-makers, it seems that one of the main reasons for business and personal contract hire still not having taken our shores by storm like it has in America despite steady growth here is a lack of understanding by SMEs. As Matt Dyer, LeasePlan UK’s MD puts it, “people have developed a misconception of the fleet industry and the concept of leasing.”

It’s hard to grasp how this is possible, though, as a wide array of printed and online outlets from the worlds of business, finance, motoring and lifestyle have been singing leasing’s praises tirelessly over the last few years. A steady stream of articles explaining the merits of contract hire can be observed on a daily basis, so if we’re to assume that such advice gets skim-read at the very least, perhaps apathy and scepticism are to blame, with LeasePlan reporting that 6% of respondents doubt the quality and availability of vehicles, while 8% believe it’s easier to own a vehicle than to lease one.

Does pricing play a part?

One of the report’s primary figures was the 43% of SME decision-makers who perceive leasing as too expensive, which isn’t actually all that far from the truth when it comes to businesses and individuals who cover more than a paltry 5,000-to-8,000 miles per year, which is what the majority of headline leasing deals are set to2. Increasing the mileage even by just a modest smidgen to 10,000 and it’s not uncommon for formerly attractive prices to suddenly turn quite ugly, highlighting that brokers need to be more upfront and realistic in the way they market deals. On the flipside, though, leasing a brand new vehicle for, as an example, £300+VAT per month, is markedly more accessible in terms of cash flow than buying the same vehicle at £30,000 outright, which is impossible even for many well-established SMEs with decent trading histories.

Additional and optional fees

LeasePlan’s respondents reckon they spend an average of 83 minutes each day on administration tasks, which admittedly isn’t limited to vehicle-related matters and includes general responsibilities such as keeping on top of emails. Mr Dyer was correct to point out that leasing “offers a number of services to help businesses with everything from vehicle ordering, maintenance management, arranging insurance, mileage management and monitoring vehicle efficiency”, but SMEs seem switched on to the fact that such services are priced in addition to basic leasing packages which just include the vehicle, delivery, RFL and VED but exclude insurance and any management or maintenance unless contracted with the broker or a separate fleet management provider.

Is leasing the main fix for the growing grey fleet?

With the UK’s grey fleet, which means private vehicles used for business, positively bulging at over 14 million cars as of summer 2016, the BVRLA and the Energy Saving Trust reported that the average grey fleet car is exhausted, older, more polluting and often more dangerous that a newer equivalent3. This is one of the chief ways in which contract hire, commonly referred to as leasing, can help businesses and organisations of all sizes to ensure that their staff drive the safest, most efficient and environmentally cleanest vehicles available, with leasing deals providing brand new cars or vans for a period of between two and four years on average. Many new vehicles nowadays are fitted with at least a few ADAS safety features and tend to emit much less CO2 than older vehicles thanks to stop-start technology and more efficient engines.

Following the publication of the report entitled “Getting to grips with grey fleet”, produced by the Energy Saving Trust on behalf of the BVRLA, Gerry Keaney, the latter’s chief executive, identified a way in which he feels the government can help, telling FleetNews: “The Approved Mileage Allowance Payments (AMAP) system used for reimbursing grey fleet drivers is the only part of the motoring tax regime that provides no incentive to drive fewer business miles or use cleaner vehicles. This blind spot is wasting taxpayer money, costing businesses millions of pounds, damaging our environment and making our roads more dangerous.”

Mr Keaney’s sentiments were echoed by Andrew Benfield, the EST’s group director of transport, who commented: “Switching to more modern vehicles for work purposes can lead to significant cost savings, cut vehicle emissions and improve employee safety.” He directly recommended contract hire by saying: “A vehicle should be leased for employees driving at least 10,000 business miles per year.” Leasing a brand new vehicle as opposed to flogging as much life as possible out of an older car or van greatly reduces the risk of mechanical breakdowns which, in the cases of business decision-makers, deliveries and staff, can result in productivity issues and perhaps even lost revenue.

Does jargon put people off leasing?

Last month, LeasePlan UK revealed the results of another study, this time looking at whether the jargon used in the motor industry, such as PCP, contract hire, salary sacrifice, P11D and finance lease, has an impact on customers4. Of the 2,006 respondents, 38% cited motor industry finance jargon as putting them off choosing a particular product or service, which would point to one of the reasons why SMEs still don’t seem to be fully warming to the concept of vehicle leasing. The study found that just 28% of female respondents felt confident asking for advice in understanding jargon, which could be significant when considering that well over 20% of UK SMEs are fully led and around 40% are partially run by women5.

The road ahead

While business contract hire is slowly but surely gaining traction in the UK, the real hero of the moment is personal contract hire (PCH), which rose a whopping 77% in the year to February 20167. Perhaps businesses are favouring keeping their vehicular solutions on as opposed to off-balance sheet, despite the latter typically being hailed as an advantage of leasing.

It’s possible that finance lease will overtake contract hire over the next couple of years as we head towards Brexit. Indeed, in his final appraisal of Experteye’s Fleeteye Industry Review, Professor Peter Cooke noted a 5% drop in business fleet contract hire to the end of H1 2016, commenting: “The second most popular method of vehicle provision is ‘ad hoc hiring’, which, although it has slipped slightly, continues to hold on to second place…Renting when needed is almost by definition the most cost effective.” With more and more ride-sharing startups and MaaS offerings entering the market, it certainly seems like traditional contract hire is also losing ground to daily or even hourly vehicle usage solutions, setting things up very interestingly.