If you maintain a fleet of commercial vehicles, it’s essential to discover how to do it as cost-effectively as possible.
This can be difficult even against the backdrop of a strong economy and an expanding business. With current factors like the uncertainty of Brexit, a weakened pound and a shift to more short-term contracts in industries like construction, then it’s a much harder call to make.
One thing’s for certain, though. In the current economic and political climate, planning for the future has become a lot more difficult for fleet managers – and that’s why many finance directors are taking a fresh look at whether it is currently better to hire or buy commercial vehicles.
Should I buy?
In the past, you may have found plenty of good reasons to buy vehicles for your fleet. It’s a way of investing unused capital, there are certain tax benefits such as a write-down allowance, mileage on each vehicle is unrestricted, and you may even find bargains in the used LCV market.
On the other hand, buying vehicles means you lock up your capital. Vehicle values tend to depreciate quite quickly, so if you need to unlock that capital you will lose a significant amount of it. Also, if you lose a contract – or a short-term contract isn’t renewed – you can find some of your fleet standing idle. Add to this the fact that you have to pay fluctuating amounts for fleet maintenance
Also, many contracts insist on contractors using vehicles that meet low emissions and high safety standards, so there’s a danger that your fleet will not meet these standards as vehicles age.
Against the current economic backdrop, these factors are making many finance directors think about the wisdom of buying vehicles. It’s fine as long as the contracts are pouring in and you can plan for the future – but once you add uncertainty of contracts into the mix, the danger of locking up valuable capital in vehicles you may not need for long is a very real one.
Or should I hire?
But is hiring vehicles for your fleet any better as a solution in the current climate? It’s a complex question, and it really depends how you set about it.
Currently, many fleet operators are attracted by the flexible hire packages offered by some commercial vehicle hire companies. These are fixed cost rentals that allow you to return vehicles at short notice without penalty. These have long been favoured by companies with fluctuating vehicle needs, as well as those that specialise in short to medium term projects that require LCVs. With the growing uncertainty of contracts in some sectors, plus the challenges of both Brexit and the economy, flexible hire is now appealing to many more fleet operators.
Not only does flexible hire allow you to change the size of your fleet at a moment’s notice without the risk of losing capital, but it also offers many other benefits. These include:
- Fixed monthly costs. Cash flow becomes more predictable
- No depreciation. So no loss of capital when vehicles are replaced
- New vehicles. Which meet legislative and contractual standards
- Maintenance included. This is part of the fixed monthly cost
- Less downtime. Some providers offer replacement vehicles if one of yours is being repaired or maintained
- Bespoke vehicles and equipment. It’s more economical to fit safety features, equipment such as telematics, or modify vehicles for specific tasks
- Less red tape. You spend less time on sourcing and maintaining vehicles, and you know they are compliant with all legal requirements.
There are downsides to flexible hire. You may face mileage limits and, of course, you won’t have an asset at the end of the contract. But given the growing risk of ending up with your capital locked up in commercial vehicles you don’t need, this could very well be a major benefit for your fleet.
Last, but not least, you always need to make a financial comparison of the costs of buying vehicles versus hiring them. But the question in today’s climate is whether you can reliably predict the cost of buying vehicles if you can’t be certain you will need them for the medium- to long-term.
To help you weigh up the pros and cons in more detail, we recommend you take a look at our free guide: which gives you more detail on the financial and practical benefits of both buying and leasing your vehicles.