More fleets extending contracts as economic climate bites
Statistics from Ogilvie Fleet reveal that businesses are extending the period of time that they operate company cars in two ways to cut costs. Firstly, existing contracts are being extended and secondly new contracts are being taken out for a longer period of time.
Ogilvie Fleet’s financial year runs from July 1 to June 30 and data for the last three years reveals that:
2009/10 – the term of all live contracts averaged 38 months across the total fleet; 25% of all new orders were placed for a period in excess of 36 months
2010/11 – the term of all live contracts averaged 40 months across the total fleet; 32% of all new orders were placed for a period in excess of 36 months
2011/12 – the term of all live contracts averaged 41 months across the total fleet; 46% of all new orders were placed for a period in excess of 36 months
Ogilvie Fleet sales and marketing director, Nick Hardy said: ‘Existing company car contracts may be for 36 months but clients are not always confident enough in the economy to take out a new lease. Instead they are extending the contract period on existing vehicles. The rental adjustment typically delivers a “double figure percentage” monthly saving if extended for 12 months.
‘As a company that prides itself on its flexibility and customer service we have no issue with lease extension as long as cars are in good condition and will have less than about 100,000 miles on the clock at defleet.
‘Not all leasing companies implement a rental rate reduction when contracts are extended so Ogilvie’s flexibility in agreeing to do so is welcomed by existing clients as well as new ones,’ he added.
In relation to the near doubling of the number of new company car contracts written for longer than the historic benchmark of three years/60,000 miles – typically 42 or 48 months – Mr Hardy explained: ‘Fleet operators are looking to Ogilvie Fleet to help them cut budgets by typically 10%.
‘The easiest and simplest way to do that is to lease a car over a longer period of time. As a result they are achieving monthly rental savings of 10-15% which means they are meeting their objective.’
Although operating vehicles into a fourth year increases the proportion of the total rental related to service, maintenance and repair (SMR) costs, many manufacturer warranties expire at the end of the third year and total mileages increase typically to four years/80,000 there was a rental reduction as the residual value curve flattened out, said Mr Hardy.
‘Most new cars and vans are easily capable of running to four years, even with six-figure mileages, and many of our clients have used some of the cost saving, and better financial modelling with Ogilvie True Cost, to provide drivers with a better car. This minimises the potential HR implications of asking drivers to keep a car for a year longer and is a win-win in most cases,’ he said.
Two years ago the Ogilvie Fleet board devised a strategic growth plan that focused on operating a 10,000-strong company car and van fleet within three years. That target was achieved in less than half the forecasted time and now the business is aspiring to a fleet size of around 12,000 vehicles through organic growth over the next two to three years.
Mr Hardy said: ‘As our fleet size is growing so our client portfolio is changing and that may also be impacting on the length of new contracts we are now writing.
‘However, many of our long-term customers are also changing their lease terms and we believe that Ogilvie’s flexibility is helping the company to both maintain and grow fleet size,’ he concluded.
Additionally, Mr Hardy believes the company’s continuing fleet growth is also due to its investment in customer service levels, new technology to improve fleet reporting and management from both a fleet decision-maker and driver viewpoint and continuous innovation such as its sophisticated online fleet manager portal, MiFleet Showroom.