What is the best way to finance a fleet? -

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What is the best way to finance a fleet?

13 September 2018

LONG-TERM LEASING, WHICH IS THE PREFERRED METHOD FOR FINANCING THE CAR FLEETS OF COMPANIES WITH MORE THAN 100 EMPLOYEES

The OVE (Observatoire du Véhicule d’Entreprise), in its 2013 barometer, gives us the main trends in the financing of French car fleets. For companies with -100 employees, purchase is the most commonly used financing method with 40%, followed by leasing (or LOA) with 29%. Long-term leasing, which is more in line with the needs of large companies, represents only 8% of the fleet. For companies with +100 employees, long-term rental is the majority with 60% of vehicles. Logically, purchasing, credit purchasing and leasing remain in the minority with 21%, 3% and 16% of the fleet respectively.

PURCHASE, A DESIRE FOR OWNERSHIP

The purchase of a vehicle meets a need for ownership, which increases the company’s assets. Depreciation is made over 4 to 5 years and is deductible from taxable income within a long-term rental limit of 18,300 euros. As a result, after the amortization period, the company has the impression that the vehicle costs it nothing. However, all the expenses related to the use of the vehicle (maintenance, insurance, etc.) remain, which can make management cumbersome when the fleet becomes large. The company can either buy cash or on credit. In this case, the monthly repayment instalments must be taken into account, as interest may be significant. In general, this type of investment is one of the worst that a company can make. The value of a vehicle is discounted by an average of 25 to 40% after one year and 60 to 70% after 5 years. Would you be ready to buy a house for 150,000 euros and sell it 5 years later for 45,000 euros? Despite these rational criteria, the desire for ownership remains strong and many companies prefer this choice.

Note: the purchase may become an obligation when the vehicle has to be transformed for the company’s needs, such as at France Télévision.

LONG-TERM RENTAL, THE EASIEST SOLUTION

Long-term leasing, on the other hand, is a turnkey solution, whose objective is to offer a complete offer combining the vehicle with a range of services (maintenance, assistance, insurance, electronic toll collection, fuel card, etc.). Management for the company is therefore simplified, although it should be put into perspective when the company is not fully outsourced to the lessor.

From a financial point of view, long-term leasing has the advantage of preserving the company’s financing capacity by not impacting cash flow. Rents are deductible from taxable income and are usually negotiable with lessors when a call for competition is systematically made (a fleet management software such as GAC Car Fleet allows it easily thanks to its fluidity grid management and its pre-order module). With this solution, the company does not have to advance the overall VAT, it is simply paid with each rent. Another positive point is that the company benefits from new models every 1 to 4 years, offering an increasingly attractive carbon footprint, which mechanically reduces the TVS.

However, there are some constraints. The lessee must return the vehicle in its original condition and respect the mileage agreed contractually under penalty of penalties.

Long-term leasing (LLD) satisfies an operating need, unlike purchase, which satisfies an asset requirement.

LOA (OR LEASING), AS AN ALTERNATIVE

Leasing with purchase option is intended for companies wishing to benefit from the advantages of long-term leasing, while keeping the possibility of purchasing the vehicle at the end of the contract. In some cases, they have to advance up to 30% of the vehicle price, which can be complicated depending on the available cash flow. The services usually provided in LLD contracts may be the responsibility of the tenant, which increases his share of management. This type of condition is usually negotiated with the financial institution, which is in the case of the LOA, the lessor.

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