Leases flourish amid rand volatility
WHILE leasing is generally considered more efficient from a tax point of view, many companies still opt to own their vehicles and, during the boom times, vehicle finance houses spend a lot of time and effort trying to increase their share of the market.
However, Byron Corcoran, head of finance and leasing division at Bidvest Bank, says that when the economic screws tighten, more companies focus on preserving their cash resources and the trend shifts into the opposite direction.
“When the economy trends downwards and cash becomes an increasingly critical resource, clients start calling us instead of the other way around. They begin to see the advantage of exposing themselves to a monthly rental instead of a huge capital outlay and this is when we see demand for leasing and other forms of finance spiking. The focus tends to be on full maintenance leasing (FML) as this allows clients to budget their vehicle and maintenance costs.”
Corcoran says given the rand’s volatility and the fact that many vehicle parts are imported, having fixed monthly costs for three, four or five years can be valuable and frees up cash resources that can be devoted to the company’s core business activities.
In addition, FML provides a disciplined maintenance environment and ensures vehicles are properly serviced and maintained on time and in accordance with the manufacturers’ requirements. As a result, vehicle downtime is kept to a minimum. This latter point can be particularly important when vehicles are specialised and companies cannot simply pick up the phone and hire a replacement.
“About one-third of the Bidvest FML fleet being used by our clients is classified as fairly specialised. This might take the form of a particular onboard crane or vehicles with specialised bodies that are designed for a specific role,” says Corcoran.
“There are often long lead times associated with buying a replacement vehicle and there are none available for hire. Therefore, many companies choose to outsource these vehicles so they can have the benefits of specialisation that comes with building and maintaining those types of rigs. They often choose the FML route to ensure that vehicles are kept at peak efficiency and take advantage of the expertise required to develop the vehicle specification for their needs.”
FML also provides fleet managers with protection against the cost of mechanical failures and this is proving popular with companies such as retailers who operate their own in-house fleets to distribute goods to their stores.
Running counter to this pattern are third-party service providers who run their fleets for reward, providing transport services to their clients.
“They often believe that they can do their own maintenance cheaper as they have specialist skills they can bring to bear and they do not want to share their profit with another party. Therefore, most of the trucking companies keep their maintenance in-house and manage their own costs and they tend to be good at containing their costs and keeping vehicles on the road,” says Corcoran.