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The Insider: Damage Limitation

By / 5 years ago / Comment / 1 Comment

There must be an easier way to handle end-of-contract charges, reckons The Insider.


The Insider looks at the issues surrounding end-of-contract charges.

There’s been a lot of noise around end of contract charges recently, a perennial sticking point. I’ve always maintained that successful procurement, as it relates to contract hire, should be a fair price for a valuable level of service. If the procurer focuses solely on price, then the supplier has little room for manoeuvre when residuals drop. And if the vehicles are handed back in poor condition, then the customer is likely to receive higher end of lease charges in an attempt to make up the shortfall.

But is everyone playing fair? If I aim for a deal where I pay a fair contract price, then I would expect any end of contract charges to be priced sensibly. A slavishly-followed matrix, multiplied by exactly the number of dents and scuffs, will quickly amount to a high figure. But how does that compare to the actual loss in sale value? Wouldn’t it be better to price the damage according to the latter? If the contract price is set realistically, then the supplier has room to manoeuvre. Equally, if the contract price has been haggled too low, why wouldn’t the supplier try and recover his losses at the end of the deal?

The tendency is also to use the same damage pricing matrix, regardless of the age and mileage of the car, and that’s just not realistic. A two year, twenty thousand miles car should come back in better condition than a four year one hundred and twenty thousand miles car. Why hide behind an industry standard for the sake of it – because the supplier can? Isn’t the industry sophisticated enough to calculate a matrix which makes allowance for high age and mileage; if indeed the loss in value is linear. That really is something I would like to see become more widespread.

I can’t help wondering whether an increase in end of lease charges might be attributed to the fact that end of lease assessment is now frequently outsourced to a third party, who are often – not always – paid a percentage of the identified damage, rather than a retainer. Surely that’s not healthy? If the assessor actually gets to carry out the repairs, which I’m told is rare, then it stands to reason they want to earn as much as possible. Why wouldn’t you?

The tendency is also to use the same damage pricing matrix, regardless of the age and mileage of the car, and that’s just not realistic
We are encouraged to repair vehicles before they are returned. This is less of a headache for the supplier, since they can get the car sold quickly. But from my point of view, if I take the car off the road whilst I am still paying for it, then I have to provide another car for the driver, be that his new car or a hire vehicle, so I am doubling my costs. And I reckon the supplier has access to cheaper repairs than me, based on volume, so if he recharges fairly – be that loss on value or a sliding scale matrix – I should be better off sending the cars back as they are.

Of course, the right time and place to negotiate on end of lease charges is at the beginning of any new arrangement. I’m a great believer in not getting myself into something I can’t see my way comfortably out of, and that applies to life in general as well as business.

As for damage assessments, when will someone come up with a system which can accurately photograph dents and scratches, without a reflection of the photographer in the background, or mis-representing the scale of the dent, if indeed it shows at all? Do you suppose one day there will be some sort of laser imaging process whereby the car is scanned, and damage is colour coded to show depth and size, so we know the quantum is accurate? Or should we, as the customer, be making more effort to be present at the end of lease inspection. If your vehicles go back, as mine do, in dribs and drabs from all parts of the United Kingdom, then that may be an unrealistic expectation; in which case surely it’s down to me to put in place a workable alternative to ensure fair representation. I can’t have it both ways.

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