Piecing it all together
As one of the most consistently popular ways of financing a new company car, contract hire has garnered a reputation as a cost-effective and comprehensive leasing method.
But how can you ensure that you get the very best from your policy? We’ve worked with some of the biggest names in the contract hire market to bring you an insider’s guide into the points you should consider before signing on the dotted line…
Focus on whole-life costs
Isolating the whole-life cost of an agreement will give a much clearer idea of potential savings than headline monthly bills might suggest.
Separating values by list price, fuel consumption, CO2 emissions, depreciation and other variables can reveal the most cost-effective cars and vans to run over a given contract period.
‘By looking beyond rental value bands, fleet managers can make significant improvements in cost efficiency and sustainability,’ explains Peter Davenport, managing director of Motiva Group.
Consider a sole supplier agreement
Splitting a contract between different suppliers can be a good way to drive down costs, but it some cases it can actually be more beneficial to sign with a sole supplier. Suppliers offer “partnership” benefits to encourage operators to work with them exclusively, which can offer a real incentive to commit to a single organisation.
‘By using multiple suppliers rather than a sole partner for their contract hire requirements many businesses are missing out on potential strategic cost benefits and efficiency savings brought about by a “partnership” approach,’ says Chris Chandler, principle consultant at Lex Autolease.
‘A sole supplier agreement can also bring more tailored vehicle choices and allow businesses to proactively manage costs through whole life costs benefits.’
Take a blended approach
The most tax-efficient financing can come from using a mixture of contract hire, contract purchase and other funding methods. Depending on your financial situation, accounting procedures and purchasing strategy, tax issues such as the rules for Writing Down Allowance – which were heavily revised in April 2013 – have varying effects.
Work with your funding and leasing provider and financial advisors to decide what blend is best for you.
Spread the load with pooled mileage
Careful fuel management can also help operators run their vehicles as efficiently as possible, from both a cost and tax perspective. Some suppliers offer pooled mileage contracts to help customers gain maximum value from their contract hire packages.
‘Pooled mileage contracts can be rolling agreements where the usage of vehicles can be monitored and altered to avoid excess mileage charges or penalties,’ says Peter Davenport, managing director of Motiva Group.
Use your supplier to negotiate discounts
Your supplier should not only be able to provide all the data necessary to make an informed decision on which vehicles will best suit the needs of your fleet, but be able to negotiate manufacturer discounts on your behalf as well.
Your supplier should have an insight into the market and a presence within the industry; approaching a manufacturer with the backing of a well-respected contract hire company will make all the difference when it comes to securing a good deal.
Take a “pick and mix” approach
A good provider will be able to offer a “pick and mix” menu of administrative services at a relatively low price.
Options could include Motor Insurance Database (MID) updates, providing service or maintenance touch-points, capturing mileage data and even monitoring driver behaviour; perhaps through the installation of telematics software as part of a fuel reduction campaign.
The flexibility of a “pick and mix” approach will allow you to isolate the most relevant options for your operation, reducing wastage and ensuring the very best value for money.
Make use of online features
Online ordering and other functionality should be included as part of your contract hire package. Having contract details readily accessible through an online portal will make updating and editing information quicker and less arduous for everyone involved.
‘If an interface is good, it will keep your drivers engaged online and save significant admin time for beleaguered fleet managers, especially if you choose not to outsource any of your fleet’s admin functions,’ says David Hoskings, CEO of Tusker.
Gain insight into your fleet
When there are questions to answer regarding fleet policy, when legislation changes or new technology becomes available, your contract hirer should be able to offer you invaluable insights.
‘Just look at the situation regarding fuel types – for a long time, a diesel-only policy seemed like the perfect one-size-fits-all solution for any fleet. Now, the outlook is not so clear and diesel-only may not be the best solution.
'A good provider will be able to assess your fleet usage and identify where changes can be made for your benefit, both in terms of costs and practicality, using real-world experience and a mix of transport solutions such as efficient turbo-petrol models, different hybrid types and pure EVs,’ explains David Hoskings, CEO of Tusker.
Pay more upfront
A larger upfront payment can significantly reduce the interest payable on the remainder of the contract, and thus help keep costs down.
Ian Hughes commercial director at Zenith, advises: ‘If cash flow is not an issue but you want the VAT reclaim benefits of contract hire (up to 50% VAT reclaim on finance payment and 100% on maintenance subject to your company reclaim rate) this could be an option to reduce the interest payable on the lease rental. For example, you could consider paying 12 months upfront or even four annual payments for a four-year lease.’
Consider signing with a manufacturer
The contract hire market is changing, with the arrival of good value manufacturer deals that are not to be ignored. Neal Francis, managing director of Pendragon Contracts, reveals the company has seen contract hire offers almost double in the last year.
‘12 months ago I don't think anyone would have predicted how ultra-aggressive manufacturer contract hire offers would become to shift broader sales volume in the UK to sustain their production base,’ he says.