Cheaper isn’t always better for your fleet company

Why short-term cost cuts lead to long term liabilities

The elements that result in short term saving for your fleet company may affect your business negatively in the long run.

You need to take all elements into consideration, asking exactly how and where each works, and considering true cost as opposed to misleading cost estimates that might appear attractive but ultimately end up costing your business money.

Residual value can be re-assessed

Customers are often swayed by an attractive interest rate but, while the interest rate is important, there are other factors that come into play too. Ultimately, the biggest factor is how much risk-taking is involved with the residual value.

For example, Avis Fleet could lease a vehicle and put a 45% residual value on it and take on full risk, compared to competitors who might put a 60% residual value on the same vehicle but not take all the risk.

The problem comes in at the end of the lease. If the leasing company hasn’t agreed to take on this risk and if the vehicle doesn’t achieve a good resale value (because the second hand car market has taken a dip) then the leasing company re-assesses the vehicle and shortfall will rest on the customer’s shoulders.

So what initially seems like a better deal ultimately is worse for companies.

Excess cent per kilometre cost

A lot of our competitors have dropped their excess c/km quite drastically to a flat 50c or 48c per km.

What that means is that if you are contracted to do 10 000 km on the vehicle but you end up doing 15 000km there’s an excess km charge that’s going to be levied.

Customers might not be aware that the charge of 50c is for the first 10 000 km and after that they multiply that figure by 2.5. So if you do the calculation, taking into consideration the total charge of competing leasing companies, compared to what we charge, you will find that it’s a better choice to go with Avis Fleet.

Early term penalties

Another way that customers might be convinced by short term gains at the expense of overall savings, is through early term penalties.

This penalty is charged when customers wish to get out of their lease early, for example they might take a contract of 36 months but leave the vehicle after 12 months leaving 24 months of the contract. There are companies who charge as much as 60% early termination penalties.

Some companies have used the waiving of penalties to tie customers into a contract. But customers should be wary, these companies are probably taking those costs and incorporating them in somewhere else in the package because otherwise they would be facing a loss when they eventually sell the vehicles.

Amount of tyres included

For Avis Fleet tyres are a safety item, with tyre replacement based on fair wear and tear. There are costs involved with replacing tyres, not least a tyre tax.

That’s why some leasing companies might not replace tyres (after they have been used to run the suggested distance) and only replace them much later. The problem here is that there are different factors which might wear tyres faster such as driver behaviour, or rough terrain.

Again, reducing the amount of tyres has a financial impact on the quote for vehicle leasing. But ultimately the customer will have to pay more for replacing their tyres themselves, not to mention inconveniencing drivers and affecting efficiency.

The question being is your company partnered with an open, honest, transparent company that’s listed all of the facts of leasing and vehicle finance?

Avis Fleet is a fleet management company with longstanding experience and expertise to help every company optimise their business processes with value-added fleet solutions that are tailored to meet your needs.

Find more information about our fleet management solutions here.