By continuing with the tradition of purchasing vehicles outright, when renting, leasing and contract hire would save them precious capital outlay, many operators are almost certainly denying themselves the option of running their fleets in a smarter way.
It’s questionable why any business, especially in these tough Covid and Brexit-impaired operating conditions, would want to commit vital capital on trucks, when from the first minute they leave their dealership they drop significantly in value, and continue to do so at an alarming rate.
That capital would be better retained in the operation, ready for investment opportunities such as infrastructure improvements, business expansion, premises enhancement, and staff development.
Although the UK transport sector is world-leading in operational efficiency and safety, the habitual commitment of massive working capital for vehicle purchases is an anomaly.
While the cost of a truck is a fixed one-off sum, and a highly significant one, the outgoings on parts, service, repair and maintenance, coupled with an almost certain hit on resale as residual values fluctuate, make it a poor economic proposition.
By comparison, the known budgetable cost of a brand-new truck or trailer on lease or contract hire (and thereby off balance sheet) and with service and maintenance costs all built in, is simpler and far less impactful on the business.
With a ‘usership’ model rather than ‘ownership’ the operator avoids the potential struggle with variable used values and demand at the end of the term – anything from two to seven years – and can either just walk away or set up a new contract.
The real proof of what we believe in is confirmed by the growing numbers of our contract hire customers and the volumes of those unprompted renewals, as they account for more and more of our current business.
Everyone understands the seeming allure of a new truck or trailer, either a single unit or a whole fleet. However, the truth is that the same benefits of driver appeal and impact on customers also come with leasing and contract hire packages, but these ‘usership’ models come with the advantages of far more economical operations and fully supported vehicles.
The supposed appeal of direct ownership was seemingly enhanced by news in the recent budget of a tax ‘Super Deduction’ for certain types of investment.
As with all such government offers though, the small print demands close attention. In this case, the offered tax allowance of 130% on acquisitions is then clawed back at the same rate on the value of the asset when sold – and, in the case of a well-run fleet, that is often around three years.
As a result, the tax incentive could effectively be halved and you have to wait until the relevant tax year’s returns are formally lodged before you see any benefit anyway. On the other hand, with rental, leasing and contract hire, the savings are monthly and immediate.
With the added pressures of rapidly changing legislation in such areas as local emissions levels - now effectively creating no-go zones in many conurbations for certain trucks - the time has never been better to throw off old acquisition habits and move to ‘usership’ rather than ‘ownership’.
It costs nothing to spend an hour or so with one of our truck and trailer experts – technical and/or financial – to see just how you might end your capital ‘punishment’ and move to smarter fleet management: providing you with the trucks and trailers you need, when you need them and to your exact specs. You have nothing to lose but high overheads!
James Gysin, Contracts Director