Short-term leasing can provide
ever-greater benefits to the finance market, as the growing number
of players in this market testifies. Antonio Fabrizio
reports.
Go deeper with GlobalData
A handful of smaller leasing companies such as Equalease
have recently emerged as lessors specialised in short-term leasing,
while larger companies such as Arval and Pendragon Contracts have
introduced specific products alongside 36 and 48 month-long leases
– for those customers who do not want to commit to long term
contracts.
This, alongside the recent pay-as-you-go schemes
introduced by carmakers Peugeot and Daimler, has now filled the
whole spectrum of vehicle rental and leasing options available to
businesses and consumers.
But how ‘short’ can a short-term lease be, and what
are the implications for traditional company car leasing?
Although it is longer – and cheaper – than a
typical rental, the definition of short-term leasing itself varies
from company to company.
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By GlobalDataEqualease, for example, provides vehicles on three
to 12-month leases, with a standard mileage allowance of 1,250
miles a month and including maintenance, breakdown recovery and
road fund licence.
Arval, on the other hand, has a product called
MiniLease for those customers requiring a vehicle for longer than
28 days – the amount of time which typically defines a daily rental
vehicle – but who do not want to commit to a longer lease. The
MiniLease option includes maintenance, plus delivery and collection
(similar to a typical operating lease).
Jon Mackney, Arval’s head of consultancy, explained
that one key element of this option is the flexibility offered, as
customers can return the car at any time after the initial 28 days,
with no early termination charges.
Equalease MD Paul Ashton said his company has seen
an increasing number of fleets moving into short term leasing
recently.
Ashton explained: “Companies that have been hanging
on to cars beyond their standard replacement cycles during the
recession have been doing so because they did not feel comfortable
making the long term commitment of a new car.”
He said that “conventional company car choices” –
buying a new car or leasing one over a four year contract – are
seen as “too much of an obligation”, particularly in the case of
smaller companies (those with a dozen vehicles or less).
Ashton continued: “We believe this trend is gaining
ground in this sector, because short-term leasing fits in well with
SME thinking. The strength of a smaller company is usually its
flexibility and its ability to react quickly to changing market
conditions and short-term leasing fits in with this approach to
business.”
Despite this increased interest in the product,
however, for Mackney short-term leasing does not represent a threat
for traditional leasing, because it targets a different need and
has a different cost for the customer.
He said: “The economics of short-term leasing,
combined with the steep initial depreciation we suffer in the UK,
means that short-term leasing will never be cheaper than
traditional 36-48 month leasing.”
“We have businesses among our customer base who
prefer to use short-term leasing instead of traditional three or
four-year leases, because they are willing to pay a small premium
for the flexibility that our product brings.”
Indeed, by definition, a short-term lease is more
expensive than a long-term one. According to Ashton, there is a
premium of around 15% to 20% compared to leasing a vehicle on a
long term contract, “but that is a price that these companies
believe is worth paying to retain a high level of control over
commitments”.
For Professor Colin Tourick, a fleet expert and
chief executive of Margin Squared, rather than a threat, short term
lease might actually represent a “great opportunity”.
Tourick said: “There is definite demand for this
product and it provides a useful additional earning opportunity
when lessors wish to hold on to specific vehicles at the end of
traditional three or four-year leases.”
All in all, the reasons behind demand for
short-term lease are radically different from those behind
longer-term needs.
As Tourick explained, businesses take cars on
short-term leases for a number of different reasons: to give to new
staff during probationary periods, for overseas visitors who will
be in the UK for a few months, to give to employees who are
seconded away from their home base for a few months, and when they
are contemplating redundancies.
Although the recession has meant that fewer
companies have been hiring new staff and that longer-term lease
contracts are typically being extended, Equalease expects that as
soon as the level of recruitment rises again, there will be a boost
in short term leasing.
Ashton said: “The recession means that employers
are even keener than usual to take a good look at probationary
staff over an initial three to six-month period to ensure that they
are the right person for the job before committing.
“What seems to be happening is that companies are
keen to retain a high degree of flexibility as tough economic times
continue and many feel more comfortable with a medium term lease
than a long one,” he added.
However, given that in some cases, the cars
supplied will not be new, customers will need to be able to trust
that their supplier is providing them with cars that are
damage-free and clean throughout.
Mackney said: “All too often, I hear of stories
where customers have selected a low-cost provider – based on
monthly rental – and then found they receive invoices for recharges
that are too high.”
“The last thing we want is to upset a long-term
relationship due to a misunderstanding over a simple, short term
lease,” he added.
At the end of the day, for Mackney, these “more
flexible” products exist to support the needs of existing
customers.
It might not be as cost effective as longer
term leasing, but it is still an ideal solution for temporary
situations, to meet seasonal demand and, of course, as the first
step before signing a long-term contract.
