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When budgets are tight, it may not seem feasible to procure an expensive fleet. It’s widely held that fancy cars must equate to higher annual costs for a business, but this is not entirely true.
Why a cheap vehicle doesn't mean a cheap fleet cost
A car’s retail price is only the start.
When considering which cars to take out on a fleet lease, one needs to understand ‘total-life cost’. This is the overall cost of a fleet vehicle over the term of leasing or ownership.
These costs not only include the retail price, but also the level of depreciation, servicing and maintenance costs, company car tax and running costs. Typical running costs include fuel expenditure and the cost of replacing tyres.
A more expensive car usually has better fuel economy, which then decreases total-life costs.
Maintenance significantly increases costs of a fleet lease.
Some entry-level cars in a fleet will be more complex to maintain because parts have to be sourced from overseas. In addition, dealership footprints for these car brands are smaller than more ubiquitous car brands.
Residual value is another factor that may increase costs of a fleet lease.
Fleetnews defines residual value as the amount fleet vehicles are worth once the leasing contract has ended, or when the vehicle needs to be replaced. In simple terms, it is the projected future value of the vehicle.
Estimating the residual value of a car requires information from vehicle manufacturers, auction prices, and accurate sales data for the vehicles. Getting this projected value wrong can lead to major losses at the end of contract as the disposal price will not match the vehicle’s settlement value.
Hence the cost of fleet leasing is affected.
A cost effective fleet lease require stringent management.
In order to understand the true cost of fleet leasing, it’s important to use professional services, which will likely equate to cost savings and thus a more informed decision. Something like a total budget optimisation should be left to the professionals.
Avis Fleet can help by making your fleet more productive, for example, we use intelligent software to determine the most appropriate contract term and kilometre allocation by vehicle.
Find out more about Avis Full Maintenance Lease and our other solutions here.
