‘Unprecedented’ demand for sale and leaseback as fleets restructure for future
The number of businesses looking to sell and lease back their fleets has dramatically increased in 2021 as businesses review options post-pandemic.
New data from ARI Fleet shows applications for this refinancing method were up fourfold in the first six months of the year.
According to ARI’s sales director Rory Mackinnon, the grow is down to the changing profile of vehicle usage and the need to release cash back into businesses for other business priorities.
“Over the last few months, we have seen a significant fourfold increase in applications for our FlexBack sale and leaseback product as fleets get to grips with the new ‘normal’. It seems that as lockdowns relax and working practices become more predictable, companies are taking this time to make long-term strategic decisions – with one conclusion being that they don’t need vehicles on their balance sheet tying up much-needed cash.”
Sale and leaseback solutions such as FlexBack allow fleets to refinance their vehicles without any effect on day-to-day operations while keeping the flexibility they need to maximise their return on investment.
And there are many benefits for businesses taking this option at the moment, says Mackinnon.
The first is that many businesses are unsure of cashflow, especially with the furlough scheme ending in September. With government financial support lessening, many companies have taken the view that they need to build up cash reserves to manage the next few months.
But changing usage profiles, maintenance issues and uncertainty around residual values – all due to the pandemic – are also considerations.
“A lot of assets haven’t been used as much in the past year, so have lower mileages and running costs than were budgeted for,” outlined Mackinnon. “That means a fleet could be sitting on an asset with a much higher value than expected. By refinancing them, they can achieve actual market value and refinance on a transparent and flexible model. Allowing them to de-fleet those vehicles that aren’t needed when the used market is especially strong and keep those vehicles needed for longer based on their own needs is also a benefit.
“And of course, because our FlexBack product gives them full transparency over SMR costs and allows fleets to operate their vehicles as required with no end-of-life damage or mileage charges, they can make the decisions that work for them.”
The transition to EVs is also part of sale and leaseback decisions due to uncertainty over when to go electric. By moving to a leased model now, they can hedge their bets and not end up exposed to ageing owned fleets that then cost a business more to move over to electric.
“Many fleets do not know at the moment how long they want to keep current vehicles for with the onset of electrification, and so FlexBack allows them to keep those vehicles operating and then defleet them at a later date and move to EVs when it suits them. It removes a lot of the risk for the business at a time when they are managing more, and more varied, headwinds than ever before.”
One further factor is the continuing issues surrounding new vehicle supply, particularly among commercial vehicles. Some models have a waiting list of around 12 months – and this is prompting companies with a heavy reliance on CVs to shift their business models to take account of these potential delays by ensuring they have the maintenance and funding flexibility to cover all eventualities.