November 2008 - CASH-STRAPPED COMPANIES MUST EMBRACE VEHICLE RENTAL AND RELEASE THEMSELVES FROM THE CHAINS OF BUYING AND LEASING
Many cash-strapped companies hit by the economic downturn and under pressure from their banks to reduce borrowings are failing to appreciate that they can free-up much needed capital and cut themselves from the shackles of owning or leasing vehicles by simply turning to rental.
The vast majority of 503 fleets surveyed by Northgate Vehicle Hire, Britain's largest vehicle rental company, either purchase their vans outright or use some form of leasing or contract hire commitment. The use of rental as a method of acquisition accounts for less than 10% of the market.
However, with the onset of recession companies staying entrenched to outright purchase are missing out on the potential to realise significant cash injections from their fleet. By turning to rental through 'sale and rentback' fleet owners can turn a depreciating asset into cash, which can then be used as a new source of working capital. This funding option is currently being pioneered by Northgate.
Meanwhile, businesses that continue to lease are hamstrung by the restrictions of a contract that penalises them if they breach its terms, for example if leases are terminated early due to declining demand for their goods or services.
Northgate's survey highlighted that just 15% of the companies that outright purchase vans have considered 'sale and rentback' as a funding option, while those using leasing/contract hire - most rated sale and rentback as a 'good idea' with the alternative funding solution likely to prove more popular among smaller companies employing up to 49 people.
Of the companies that currently rent some or all of their vehicles, the single most important benefit is the flexibility that rental provides. Respondents also highly rated the fact that rental was 'cost effective' with no additional unexpected charges. Other key benefits include 'convenience' and 'ease of use', being able to select from a wide choice of vehicles and the fact that there remains no contractual commitment under Northgate's NORFLEX rental solution.
Phil Moorhouse, managing director of Northgate, which operates a fleet of 68,500 vehicles from more than 80 outlets across the UK, said: "With the UK economy officially entering recession, it is imperative that companies analyse all their costs. Operating a fleet of vehicles is typically the second highest cost faced by most businesses after staff."
"Therefore, fleet costs should be under the microscope as companies look to save money and reduce their risks. Whether businesses presently outright purchase or lease, it is clear that too many are failing to appreciate the cash-saving potential of rental."
"All fleets, irrespective of size, should view rental as an alternative vehicle acquisition route. It is extremely price competitive in comparison with other methods of acquisition, particularly when you consider there is no long term funding commitment and businesses are able to eliminate the risks of ownership. This flexibility is even more important with the economy going into recession and the uncertainty that this brings in terms of future business prospects."
He added: "The majority of our customers understand the flexibility that vehicle rental provides, while still leaving them in full control of their operations with a fully utilised fleet. We need to convince more organisations of those benefits and to focus them on the idea of vehicle usership and not ownership.
"Historically, rental has been viewed in many cases as a temporary stop-gap solution, but we need to change that perception. Flexible, contract-free rental solutions without the burden of having cash tied up in a depreciating asset is the smart move for forward-thinking businesses."
It is for that reason that Northgate created 'sale and rentback'. Depending on the age of vehicles sold to Northgate, companies will either rent the same units back at a fixed rate or, if older than 27 months, take immediate delivery of new vehicles.
Meanwhile, with the Northgate fleet composed of the newest vehicles powered by the most modern technology that vehicle manufacturers offer, customers can be assured that emission levels are as low as possible. Additionally, vehicles are equipped with the very latest safety features and are serviced and maintained in accordance with schedules laid down by manufacturers through Northgate's national network of 60 workshops.
