Full maintenance contract hire offers a risk-free funding solution for businesses amid economic uncertainty, according to Ian Hill, managing director of Activa Contracts.
Hill believes that firms should seek to eliminate risk as far as possible, stating that finance lease funding, which has been recommended recently by the industry, is far from risk-free. Finance lease, with a bolt-on ‘actual cost’ fleet management package, means lessees take on the residual value risk.
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This method of funding has remained only popular with a small number of UK fleets, according to Hill. Activa Contracts, which operates a fleet of 7,000 company cars and vans, presently has no customers that have opted to use finance lease funding.
“Contract hire provides certainty for fleets in uncertain times,” Hill said. “Our customers want certainty and company boards want to know how much it costs to run their vehicle fleet all-in on a monthly basis. Contract hire inclusive of maintenance and other services, if desired, delivers that certainty.
“Fleet is non-core for most organisations. Just as businesses outsource other non-core activities such as office cleaning and security so they do fleet provision because they want costs to be predictable,” Hill continued. “Vehicle residual values along with maintenance costs are the huge fleet unknown with Brexit and in times of economic uncertainty so why would any company want to expose themselves to taking on those risks?”
Finance lease grew in popularity with some organisations as it was the only form of leasing that appeared ‘on-balance sheet’ until the January 2019 International Accounting Standards (IAS) incorporated contract hire into that requirement.
Mr Hill said: “Some businesses liked finance lease because it highlighted the strength of their balance sheets and operating performance in terms of earnings before interest, tax, depreciation and amortisation (EBITDA) reporting, but that issue no longer arises with IAS changes at the start of the year that brought contract hire on to balance sheets.”
