October 2008 - COMPANIES TURN TO FLEXIBLE RENTAL AS THEY FIGHT ECONOMIC SLOWDOWN REVEALS NORTHGATE SURVEY
Almost a third of nearly 500 companies have reported a slump in business as a result of the economic slowdown with some firms intending to increase their use of contract-free rental vehicles to help them through the recent turmoil, according to a survey by Northgate Vehicle Hire.
The survey of 483 companies by Britain's largest vehicle hire company, which operates a fleet of 68,500 vehicles from more than 80 rental locations, found that 145 companies (30%) had experienced a decrease in business with 80% of those most affected by the downturn being smaller companies with less than 50 employees.
However, 58% of those questioned said they had not yet been affected as a result of the credit crisis and growing uncertainty over the economy, while the remaining firms reported increases in business volumes.
Of the companies experiencing a decline in business, almost two-thirds (64%) said they expected to make none or only minor changes to their fleet size, although 12% said they anticipated a cut in the number of vehicles operated and 10% said they would aim to reduce operating costs.
However, not surprisingly, the economic slowdown is stimulating demand for commercial vehicle rental with 11% of the companies who reported a business downturn saying they intended to hire rather than buy vehicles.
When the business economy comes under pressure one of the first actions taken by companies is to axe or delay any capital expenditure. However, most companies still require vehicles to meet customer demand.
Northgate Vehicle Hire marketing director Ross Clarkson explained: "This is where vehicle rental as opposed to leasing or outright purchase comes into its own. Not only can firms budget more effectively but they also have the flexibility to increase or reduce the number of vehicles operated at anytime without financial penalty."
Light commercial vehicles dominate the fleet run by Northgate, which hires most of its vans out on Norflex their market pioneering flexible rental solution. This gives customers the ultimate freedom in managing their vehicle fleet without any contractual commitment or early termination penalties.
"With known monthly budgeted costs and no residual value risk attached to the vehicle, businesses are increasingly viewing rental as a method of vehicle acquisition rather than being burdened with a fixed cost that ownership entails," said Mr Clarkson.
The survey also found that some companies were looking at extending fleet replacement cycles, but Ross Clarkson warned: "Companies that extend replacement cycles because they cannot afford to buy new vehicles due to a reduction in business inevitably find that they become more expensive to operate as running costs rise and residual values fall".
To help businesses overcome the economic slowdown and boost cash flow, Northgate Vehicle Hire offers 'sale and rentback' which enables firms to move their fleet vehicles to the flexibility of rental.
Northgate Vehicle Hire views 'sale and rentback' as the smart move for forward-thinking businesses and it provides them with a range of benefits including: an immediate cash injection into their business that could be used to fund development of core activities, the removal of expensive depreciating assets from their balance sheet, and the elimination of the need to seek loans to fund vehicles and other capital equipment, which may prove difficult in the credit crunch.
Mr Clarkson said: "Sale and leaseback has been a staple offering from contract hire and leasing companies for a number of years. However, we believe by using 'sale and rentback' companies can benefit from the flexibility of rental.
"With known monthly budgeted costs and no residual value risk attached to the vehicle, businesses are increasingly viewing rental as a method of vehicle acquisition rather than being burdened with a fixed cost that ownership entails."
