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New rules unlikely to affect demand for leasing
27 September 2010
Fleet Alliance agrees with the leasing industry’s trade association, the BVRLA, when it says that new accounting rules designed to make the use of leasing more transparent are unlikely to affect its popularity as a funding method.
New proposals from the International Accounting Standards Board are intended to bring all leased assets onto the balance sheet of publicly quoted companies to give a more complete picture of a business’s financial position for potential investors.
However, the proposals have not been without criticism as they include cars with a substantial residual value for which the lessee is not at risk but which will be shown on the lessee’s balance sheet for the first time. Nor do the proposals make an exception for leases of low value, nor for assets which are “non-core” in relation to the lessee’s own business.
John Lewis, chief executive of the British Vehicle Rental and Leasing Association (BVRLA), believes that leasing will remain an attractive option in spite of the more onerous financial reporting requirements.
He said: “The new approach differs substantially from the current rules and will bring an extra reporting burden. However, most lessees are not quoted companies and it is likely that in the UK they will be able to keep operating leases off-balance-sheet for at least another five years after the new global standard takes effect.
“Even for those who are affected, bringing leased vehicles on to the balance sheet will not erode the key benefits of the product. Leasing has proved its value, sheltering companies from the risk of fluctuating vehicle values and freeing precious working capital that would otherwise have been spent buying an asset,” he said.
Fleet Alliance agrees that there should be no discernible fall in popularity for contract hire and leasing as a result of the new rules.
“While the new proposals will only apply to publicly quoted companies, they will make reporting more onerous for leased assets such as cars. But we do not believe this is sufficient on its own to reduce the benefits of leasing as a means of funding company cars,” said managing director Martin Brown.
“Many of our clients prefer to lease, rather than buy their cars, for a host of reasons, including better cash flow and more readily budgeted expenditure,” he said.
To help clients find the best leasing rentals for their vehicles, Fleet Alliance uses a competitive tendering solution that has been shown to drive down fleet funding costs by as much as 8-10%, by selecting the most cost efficient leasing rates available from a panel of lenders.
Competitive tendering for each new car to be added to the fleet creates competition between leasing companies and leads to the lowest possible costs of acquisition.
There are a number of other benefits, too. By having multiple sources for vehicles, rather than a single source of supply, businesses are not dependent upon one leasing company and not at risk from excessive price rises and fluctuations.
Some leasing companies may be more competitive on certain makes or models of vehicles, based on their experience or opinion of them, while others may have differing views and hence higher prices. By using competitive tendering, Fleet Alliance can make these diverging views work to their customers’ advantage by securing the most competitive prices for the vehicles in question.
Fleet Alliance works with a panel of six or seven different vehicle funders, to ensure that when a fleet client requires a new car or wants to replace an existing one, only the cheapest quote currently available on the market from its preferred suppliers is the one put forward.
“Competitive tendering undoubtedly drives down acquisition costs as well as ensuring that businesses are not caught in a single supply situation where they could be at risk from excessive price rises and fluctuations,” added Martin Brown.
27 September 2010
Fleet Alliance agrees with the leasing industry’s trade association, the BVRLA, when it says that new accounting rules designed to make the use of leasing more transparent are unlikely to affect its popularity as a funding method.
New proposals from the International Accounting Standards Board are intended to bring all leased assets onto the balance sheet of publicly quoted companies to give a more complete picture of a business’s financial position for potential investors.
However, the proposals have not been without criticism as they include cars with a substantial residual value for which the lessee is not at risk but which will be shown on the lessee’s balance sheet for the first time. Nor do the proposals make an exception for leases of low value, nor for assets which are “non-core” in relation to the lessee’s own business.
John Lewis, chief executive of the British Vehicle Rental and Leasing Association (BVRLA), believes that leasing will remain an attractive option in spite of the more onerous financial reporting requirements.
He said: “The new approach differs substantially from the current rules and will bring an extra reporting burden. However, most lessees are not quoted companies and it is likely that in the UK they will be able to keep operating leases off-balance-sheet for at least another five years after the new global standard takes effect.
“Even for those who are affected, bringing leased vehicles on to the balance sheet will not erode the key benefits of the product. Leasing has proved its value, sheltering companies from the risk of fluctuating vehicle values and freeing precious working capital that would otherwise have been spent buying an asset,” he said.
Fleet Alliance agrees that there should be no discernible fall in popularity for contract hire and leasing as a result of the new rules.
“While the new proposals will only apply to publicly quoted companies, they will make reporting more onerous for leased assets such as cars. But we do not believe this is sufficient on its own to reduce the benefits of leasing as a means of funding company cars,” said managing director Martin Brown.
“Many of our clients prefer to lease, rather than buy their cars, for a host of reasons, including better cash flow and more readily budgeted expenditure,” he said.
To help clients find the best leasing rentals for their vehicles, Fleet Alliance uses a competitive tendering solution that has been shown to drive down fleet funding costs by as much as 8-10%, by selecting the most cost efficient leasing rates available from a panel of lenders.
Competitive tendering for each new car to be added to the fleet creates competition between leasing companies and leads to the lowest possible costs of acquisition.
There are a number of other benefits, too. By having multiple sources for vehicles, rather than a single source of supply, businesses are not dependent upon one leasing company and not at risk from excessive price rises and fluctuations.
Some leasing companies may be more competitive on certain makes or models of vehicles, based on their experience or opinion of them, while others may have differing views and hence higher prices. By using competitive tendering, Fleet Alliance can make these diverging views work to their customers’ advantage by securing the most competitive prices for the vehicles in question.
Fleet Alliance works with a panel of six or seven different vehicle funders, to ensure that when a fleet client requires a new car or wants to replace an existing one, only the cheapest quote currently available on the market from its preferred suppliers is the one put forward.
“Competitive tendering undoubtedly drives down acquisition costs as well as ensuring that businesses are not caught in a single supply situation where they could be at risk from excessive price rises and fluctuations,” added Martin Brown.
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