Corporate entities are increasingly turning to vehicle leasing as an escape route from the ever increasing costs of buying vehicles to meet their transport needs.
On the same breath the expatriates and diplomats whose contracts are usually very short are also getting more and more attracted to vehicle leasing option compared to outright purchasing.
Unfortunately, not many people understand the intricacies involved into this vehicle leasing so this week l want to expose the facts behind this structure in case some of you may be wondering how it really works that can empower you to make a decision.
How leasing works
Vehicle leasing is a type of contract that allows your company to enter into an agreement with a leasing service provider for a minimum of two years or 50,000kms on brand new vehicle models of your choice.
You can also choose used vehicles, which will have a minimum of one year or 25,000kms contract period.
There is no security required from you to enter into the leasing contract except the approval verification process to establish your capacity to make payments.
The strategy seeks to enable your company to optimise capital and focus on your core business that ultimately reduces a huge capex outlay that removes motor vehicles as assets from your balance sheets.
Motor vehicle leasing contract period can be extended with an option for you to purchase the assets at end of lease to give you maximum vehicle utility.
Rentals are according to the duration and mileage you need, not according to arbitrary lengths and distances set by a rental company, so you only spend money on what you need.
The leasing company can set your monthly charge in advance based on your requirements, but this is flexible and will change as your needs change as well.
This allows you to plan your transportation budget years ahead so you can focus your finances elsewhere.
The majority of the leasing companies offer leasing on all types of vehicles.
The list includes small cars, mid-size cars, pick up and double cabins, luxury cars for management, trucks and lorries, buses, vans, earth moving equipment, construction equipment, computers and many more.
This ultimately improves the efficiency of your transport division based on the fact that service and maintenance is followed religiously and breakdowns becomes a thing of the past.
Leasing is a framework to provide access to a largely increased number of well-maintained and utilised vehicles.
However, there are key differences between a car lease and a car rental that you should understand to avoid confusing the two.
Car rentals are designed for short contracts from as short as some hours, a day or a week or a month.
On the other hand, a car lease is designed for a fairly longer period as l stated above that new cars have a minimum of two years and 50,000kms while used cars are on one year and 25,000kms.
Car rentals are more expensive as compared to a proper lease agreement which also gives the customer the first right of refusal to buy the vehicle at the end of the lease period.
Types of lease contracts
*Dry lease
Dry lease is a type of contract that excludes maintenance, insurance and rescue services. The customer undertakes to handle these aspects by themselves.
*Semi wet lease
This type of vehicle leasing includes the vehicle hire and insurance cover.
*Wet lease
Wet lease is a full service, maintenance and insurance cover contract.
Full package lease
The full package lease contract includes full service, maintenance, insurance, breakdown service and replacement vehicle in case of a problem or accident.
It is recommended to always use the full package lease contract because it provides for every service area that you may require that provides you with a peace of mind in the event of a problem.
The process to sign a vehicle lease
- Customer submits a request of particular vehicle(s)
- Leasing company offers the best solution and advice on the customer’s needs
- On agreement the customer issues an order or a commitment in writing on the selected vehicle(s)
- The customer submits all the required Know Your Customer (KYC) documents to the leasing company
- The vehicle lease agreement is prepared and signed
- The leasing company purchases or offer interim vehicles for use from the existing fleet while waiting for the right models to arrive
- The leasing company receives the cars and prepares delivery to the customer
- The customer and leasing company hold review meetings to ensure smooth running of the leasing services
Benefits of vehicle leasing
- Savings on capital outlay compared to when purchasing
- You enjoy the full benefits of the vehicles as if you were the owner
- Lease payments are fixed that makes it possible predict your expenses
- Vehicle running costs are fixed, except for out of contract repairs or excess mileage use
- Repayments can be claimed as expenses in your accounting records
- Payments are flexible and can be negotiated to suit your particular situation
- You have the ability to upgrade outdated vehicle models at a lower capital cost
- Lease renewal and extensions of agreements is possible
- Your company will have no motor vehicle asset risks
- There is no security required to take up the lease
- You can improve service delivery and increase revenue collection
- Access to service centers across the country
- Driver training opportunities
- Access to drivers from the leasing company
Motor vehicle depreciation
Brand new motor vehicles will lose, on average, about 20% of their value within the first year and thereafter they may lose about 15% per year until the fourth or fifth year.
However, actual depreciation depends with the brand name. Majority of the European and Chinese brands lose value much faster than Japanese models like Toyota and Nissan.
It is based on these facts that perhaps finance gurus within corporates find wisdom in taking up leasing as compared to purchasing.
In my research l have established that there are some leasing companies that have the financial muscle to purchase vehicles and lease them over some years.
So it takes great insights into the vehicle leasing model, financial resources and enhanced structures to support the service and maintenance at a national scale in order to offer customers value and convenience under the leasing contract.
In many other cases majority of banks offer vehicle leasing finance where it finances the leasing company to own the vehicles based on an approved customer whose financial statements meets their credit ratings.
However, if the bank has a full fletched leasing division both financing and leasing can be executed under one roof.
Some of the leasing companies that l have made contact with in Zimbabwe, South Africa, Kenya and Uganda literally have all the types of vehicle models from Toyota, Mercedes Benz, Porsche Cayenne, Volkswagen, Hyundai trucks & buses, Sinotruk, HINO, Suzuki, Isuzu, Mazda, Nissan, KIA, Ford, UD, Scania, Volvo to mention but a few.
However, in the case you prefer particular models, which they may not have in stock it’s not a deal breaker because they can order the vehicles specifically for you and all it takes is a little patience for the delivery of the vehicles from the suppliers.
So if you are a government department, a UN agency, a NGO, an expatriate or a diplomat it is wise to check about the leasing option before going for the traditional purchasing root, perhaps, you may save some money and increase your convenience.
*Stanley Makombe has 24 years’ experience in this industry, provides online car sales training and business coaching to entrepreneurs struggling to run profitably. He writes in his own capacity and can be contacted on +254 743 900 590, on X @Stan_Carsales; email: stanley@stanleymakombe.com, www.stanleymakombe.com
