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End of the road for traditional three and four-year company car leases

Tony Donnelly, chief executive, Goodwood Corporate Mobility

Fleets are increasingly demanding vehicle supply flexibility, which is why it could be the end of the road for the 36 and 48-month traditional vehicle leasing agreement.

That’s the view of Tony Donnelly, chief executive of Goodwood Corporate Mobility, parent company of both GoodLease and Goodwood Rental, which provides cars for an average 12-month/20,000-mile period.

Fuelled by a wealth of fleet industry uncertainty including no government clarity on company car benefit-in-kind tax rates beyond the 2020/21 financial year; and widespread new car supply disruption as a consequence of the introduction of the Worldwide harmonised Light vehicles Test Procedure (WLTP) for emissions and MPG, fleet operators have learned that  they can hire quality cars for periods of up to 12 months and sometimes longer on the same terms (price) as they can get a 36/48-month lease.

Furthermore, businesses are not tied into a lengthy three or four-year contract and do not risk the imposition of potentially exorbitant end-of-contract charges (mileage and damage). Equally, they don’t have to concern themselves with vehicle maintenance due to today’s longer service intervals, while the new car is a motivational tool for an organisation’s workforce.

Additionally, as the cars are new they feature the very latest technology and will be WLTP-compliant.

Also, the new world of corporate mobility has moved from just being the provider of leased cars and vans – it’s had to create a comprehensive range of flexible and competitively priced mobility services to meet the needs of the new generation – whose requirement and preferences are very different from the ‘old guard’.

Billing the new trend ‘intelligent leasing’ typically exclusive of maintenance provision, Mr Donnelly said: “For example, many millennials who are moving into management positions do not have the same attachment to company cars as older employees – they simply want mobility when needed.”

He continued: “While rental terms can vary enormously between suppliers, overall, rental offers far more flexibility than long-term contract hire. Furthermore, leasing companies are in a mild state of panic as used car values fluctuate wildly and their business model begins to show its unsuitability for the modern corporate user – witness the rise of mobility-as-a-service and new on-demand travel solutions such as car share and car clubs.

“To add a further layer of complexity, manufacturers’ bonuses which leasing companies should use as a buffer have long been swallowed up by corporate bean counters and taken as profit or used to heavily discount lease rates to remain competitive.

“Additionally, regular changes to manufacturers’ model line-ups can play havoc with company car policies and resale values when a model has been face-lifted midway through its life cycle.”

Mr Donnelly continued: “At a time when many businesses are shrouded in Brexit uncertainty, committing to long term three and four year leases is seen as an unnecessary risk and shorter term rentals limit corporate and fleet exposure.

“There is no doubt in some cases the ‘vested interest’ of leasing companies, especially if owned or influenced by a bank, has been recognised by some fleets and rightly should be a concern. Therefore, the growth of mid-term rental further emphasises recognition by fleets of that fact, while simultaneously delivering the flexibility they are striving for through a mix of providers.

“In recent years we have witnessed leasing companies trying to compete with the rental sector by offering new solutions such as mini-lease and now we are seeing them, in a bid to shore up volatile vehicle resale re-sale values, offering used car leases, mainly to the general public, but also now gradually into the business market.

“Similarly, just as traditional contract hire and leasing companies have moved towards shorter-term rental, so the traditional international short-term rental companies have tried to adapt their models, but there still remains a degree of inconvenience to that solution – notably the funding terms/buy-back arrangements with vehicle manufacturers.

“Buy-back arrangements that many rental companies use to keep their fleets ‘fresh’ can annoy many corporate users when cars are recalled as that triggers an unnecessary administrative burden to update the Motor Insurance Database, issue new fuel cards and change company records in HR and finance as well as hassle for drivers in switching cars.

“That’s why space in the market has been created for professional rental intervention providers, such as Goodwood Rental. We are not tied to buy-back arrangements, offer no quibble damage policies and, together with accurate billing, all the support services expected of a corporate mobility fleet management provider.

“Business is flourishing in the short and mid-term rental market because fleets do not want to be at the mercy of one vehicle provider – a long-term leasing company or international rental company – amid a desire for increasing vehicle flexibility.”

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