Lease contact extensions usually ‘false economy’, says Arval
Company car lease contract extensions are usually a ‘false economy’, with businesses generally seeing more benefits from taking out a new lease.
So says Arval as it highlights that more fleets seem to be considering lease extensions in response to the current economic uncertainty.
According to Richard Cox, fleet consultant at Arval, almost the only advantage of a lease contracts is that it “allows you to kick the can further down the road and put off the decision on a new vehicle for a while”.
He added that signing up for a new vehicle would generally bring a range of benefits.
“A new car will almost certainly be cheaper in terms of fuel economy than a 3-4 year old model and, in many cases, also attract a reduced level of benefit of both driver and employee taxation thanks to emissions improvements.
“Additionally, a car that is three years old will often be attracting extra costs in terms of predictable wear items such as tyres and brake pads but even be heading towards needing major mechanical repairs just at the point it falls out of manufacturer warranty.”
Cox explained that, quite often, decisions to extend contracts at times of economic uncertainty were made as a result not of sound financial reasoning but tended to be based more on emotional factors.
“In the current situation, many businesses are looking at areas where they can reduce costs or defer investment decisions, and that is an understandable strategy. As part of this kind of exercise, keeping hold of your existing car looks like a saving even though it probably isn’t.
“The best course of action is to sit down with our consultants and run the figures for a contract extension, looking at the likely financial outcome. If hanging on to existing cars makes sense, we’ll help you to prove the case – but in the vast majority of instances that we see, sticking to your standard renewal policy is the correct financial decision.”