Focus On Leasing
and Rental
OF FUND HOUSE
should be going in at least every year for inspection because there are wear and tear items – suspension, clutches, shock absorbers – that could easily be getting close to the end of their life. Obviously, the MOT will pick up things, but… it is very restrictive. You can’t take the wheels off, for example, so you can’t really inspect the brakes. The only way you really know if a vehicle is safe is by asking someone to do a safety check on it.”
Golding also points to an often- overlooked funding method for vans that could work to the advantage of profitable businesses, which may end up hanging onto theirs for relatively long periods. “The Annual Investment Allowance… really is something a lot of businesses are unaware of,” he explains. “HMRC consider a commercial vehicle to be plant and machinery, which means you can have 100% write off in the first year up to an asset [value] of £1m, which can be powerful when you are looking at funding options. “If you lease hire that vehicle, you can’t use that allowance. Whereas if you lease purchase, you’ve got a massive benefit there of 100% of the asset written off against corporation tax. Obviously, if you are not making any money and you don’t pay any corporation tax, then that’s not as relevant. But if you are paying tax… [consider] purchasing these vehicles so that you have them on your balance sheet.”
He applies a caveat to electric vans as its specifically tricky to make a call on their residual values. Its uncertain if these could decrease in value as more advanced equivalents with longer ranges appear, so are probably not the kind of thing a fleet really wants on its balance sheet. “If you are looking at electric vehicles, I would still recommend to lease hire them rather than take the risk of actually buying outright because if there is then an advancement in battery technology and you’ve got a three-year agreement
16 WhatVan?September 2023
Sogo Mobility managing director Karl Howkins says LCVs stay on fleet for an average of 18 months
you can always upgrade it and get one with a better battery.” We discussed the role of mid-term flexible leases in our August issue, in which leasing giant Arval championed them as a try-before-you-buy method for electric vans. Consultant Ben Edwards claimed the lack of a long-term commitment and ability to hand back the vehicles was much easier to swallow than jumping in at the deep end with a conventional five-year lease. The format is said to allow fleets and drivers to get familiar with plug-in LCVs ahead of a wider rollout, and Edwards said almost every Arval customer that had gone this route had kept hold of their electric vans or ordered more. Sogo Mobility has a similar ethos. Though managing director Karl Howkins is agnostic about fuel types, the company specialises in exactly those sorts of short-term flexible leases with maintenance bundled in.
“The average age of the fleet is 442 days, that works out at about 14/15 months across cars and vans,” he explains.
Howkins concedes that LCVs stay on the fleet for longer, at 547 days or
around 18 months on average. “Vans tend to be longer because customers want to sign write them, they probably want to put a bit of racking in … so you can’t turn them any quicker than that. “If you’re getting a van from us,
you’re doing 4,000 miles a month, you’re going to run into maintenance. If I’m in a product and I’m paying £30 more than a traditional lease but I haven’t got to pay for my road fund licence or my maintenance, I’m probably thinking, ‘that’s alright; I haven’t got to worry about it’,” Howkins explains. Daily rental has always traded on its flexibility and ‘there when you need it’ status. However, suppliers have been no less at the mercy of new LCV shortages than anyone else and anecdotally we have heard stories of some household name rental firms shopping for used vans at auction to boost their availability. Despite the typically higher cost, some fleets have chosen to stick with rental for longer periods because it aligns with their contracts. “There’s still a fair amount of van fleets out there – even decent-sized ones – who are renting their vans for one-and-a-half/two-and-a-half years
[because of] operational efficiency,” Howkins adds.
“They might have shorter-term contracts with city councils and places like that, so they need a more flexible solution. They’ve caught a bit of a cold, obviously, post-Covid, because monthly rental prices have gone up substantially on a 90-day rolling hire in comparison to a five-year lease.”
The moving target that is running a fleet makes it extraordinarily difficult to pick a clear course, but if we can draw a conclusion from the industry experts, then this is it. Profitable companies that still require petrol or diesel vans with the means to buy them outright or via lease purchase should go that route. In that scenario, the Annual Investment Allowance makes it a no-brainer, and you can hang onto the vans for as long as you like. For electric LCVs, leave the risk to the leasing or rental company and consider a shorter-than-average term. They will almost certainly be pricier than a five-year contract hire, but mid-term flexible leases are worth a look because you can whet your EV appetite without any serious commitment while skirting responsibility for their residual values.
www.whatvan.co.uk
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