Take the longer view

Date: Wednesday, August 26, 2015   |   Author: James Dallas

Operators need to look far beyond the list price when selecting the most cost-efficient vans for their businesses, as James Dallas discovers


 

When buying a new van the first thing an operator is likely to look at once they have identified the model that suits their needs is the big sticker on the windscreen revealing the list price.

But in real terms this figure is becoming largely academic and less relevant than it once was when cash buyers, particularly owner-drivers, would be swayed by the upfront price without considering the vehicle’s worth at disposal time.

As Tim Cattlin, CAP Monitor’s CV Editor says: “Brands that traditionally have had a low outright purchase price (such as LDV) have often done reasonably well in the past having attracted conquest business from other manufacturers with a low bottom line price.”

But Cattlin believes customers have now wised up and are prepared to pay more for a premium brand because “they will recoup more at disposal”.

George Alexander, CV editor for Glass’s Guide, concurs.

“Within the total cost of ownership for any LCV, the strength of their residual values is of key importance,” he says.

“Therefore, customers will often be attracted to a premium brand that will typically be accompanied by such healthy RVs.”
 Depreciation is the enemy when it comes to holding on to a van’s value and the bad news, Cattlin says, is that there is no escaping it – just various ways of mitigating the risk – with leasing the most popular.

Depreciation causes risk – for example, if a company buys a fleet of vans on finance and they depreciate rapidly they could end up being worth less than the outstanding balance before the finance agreement comes to an end.

Making the wrong acquisition decision at the outset could mean your business pays a hefty price further down the line.

Having the lessor fix running costs at the outset can dispel uncertainty, explains Cattlin, by “letting someone else decide what the van will be worth at the end of the term instead of there being [an] unpredictable variable”.

But Cattlin warns there is always the threat of end of contract charges when operators may face bills for scratches, scrapes and dents, an occupational hazard when working vans hard.

Alexander agrees that most major fleets will lease rather than buy their vans outright and says the RV strength of the models they choose will determine the monthly rent, with the most prestigious product therefore often the most cost effective.

He adds: “The key to maximising returns for used LCVs is to ensure that their specifications best meet the needs of the majority of customers for a pre-owned van.”

Adam Vint, senior sales manager at Northgate Vehicle Hire, claims four out of five businesses do not really understand the whole life costs of their vehicles and the financial implications of making the wrong decisions in their acquisition strategies.

A recent survey by fleet management company GE Capital found that reliability (53%) and whole life costs (48%) were overwhelmingly the top priorities for operators when setting their fleet policies but many do not realise that the two issues go hand in hand.

As well as the initial outlay and subsequent monthly payments, Vint says operators should consider service, maintenance and repair (SMR) bills, especially after the manufacturer warranty expires, and the cost of the Road Fund Licence, which will be cheaper for younger vans.

Annual breakdown cover is another additional cost to consider and this often ties in with the cost of replacement vehicles during periods of downtime.

Vint says customers should also be clear they have correctly calculated lump sum outlays such as finance deposits, advanced rental payments and how much interest they’ll be paying if making monthly repayments.

He warns that if payments are for contract hire, operators should make sure there are no unsuspected penalties for returning vans before the end of the deal, which will have a negative impact on whole life costs.

Fuel is an area where operators could potentially save money, says Vint, by choosing an acquisition package where vehicles are regularly updated with younger, more efficient models. On the other hand, paying for extras such as alloy wheels is not guaranteed to benefit the bottom line and they are prone to damage too.

Northgate recommends businesses take a collaborative approach, consulting managers and drivers, to identify the vans that meet requirements from a functional as well as a financial point of view.

Drivers should find the vehicle comfortable and suitable for use – if they dislike their working environment, they won’t treat it with respect. If possible Northgate says drivers should test drive vans before acquisition to see if they offer everything needed for the job and also to ensure they feel confident behind the wheel to reduce the risk of accidents.

Not surprisingly, Mark Lovett, head of Commercial Vehicles at Leaseplan, emphasises the point that leasing passes the risk of a depreciating asset from the operator to the leasing firm.

“The monthly lease rental for the operator will include the whole life costs and the anticipated residual value of the vehicle,” he says, “therefore the operator is at no further risk of exposure to depreciation.”

Lovett names Mercedes and Volkswagen as two brands with consistently strong whole life costs but says most manufacturers have certain models that perform strongly and others that do less well.

“Manufacturers with well priced SMR costs and strong RVs will have an attractive lease rate,” explains Lovett.

But he stresses that operators must balance the monthly rental rate with the van that best serves their needs. If a van has a competitive whole life costs, for example, but an insufficient payload for the job it will have to be passed up for a van with a higher payload but perhaps a less competitive whole life costs.

Getting the payload right is vital: choose a van that’s too small and you may risk the legal consequences of overloading but get one too large and you’ll pay to carry empty space.

“We always qualify the client’s operational needs with their financial/rental budget to ensure we provide the most cost effective van for their needs,” claims Lovett.

Gareth Jones, the boss of Dawsonrentals/vans, says the firm always considers whole life costs when stocking its own LCV fleet.

“We look at fuel consumption and environmental credentials on every asset we procure,” says Jones. “Then we look at key data such as first fix rate, average attendance time and average days off road.”

Jones explains the first consideration is reliability because “we don’t want the vehicle to break down”. If it does then the next point to address is how quickly it can be fixed and put back on the road.

Mercedes-Benz, for example, claims its MobiloVan technicians repair 80% of vans at the roadside.

Dawsons also gauges the response of the manufacturer’s retail network through looking at the number of replacement vans it supplies compared to the number of vehicles off road.

“Customers always want their vehicle on the road and in the event it is off the road it has to be for the shortest time possible, due to the potential loss of earnings, disruption and inconvenience,” Jones says.

“We want assets that are robust, functional, fit for purpose and efficient as well as partnerships that mean when a vehicle is off the road we can quickly address matters.”

Dawsons’ primary LCV suppliers are Volkswagen, Mercedes, Ford and Isuzu.

When calculating whole life costs operators need to take into account not just pence per mile on road but all related costs when a working vehicle is off road. The primary consideration, however, should be on minimising depreciation and for this the right specification and colour is vital. An enhanced trim pack, metallic paint, parking sensors, air-conditioning and full ply-lining will also help to protect residual values.

 

 

Top tips for a healthy whole life

 

Driver training: Heavy feet cost money

Wear and tear: Carry out regular vehicle checks

SMR: Keep comprehensive service records, shop around for the best service supplier

Cut downtime: A van off road is losing money

Mileage: Can you reduce it? Small changes mount up

Consider buying used: Depreciation from new is the heaviest

Vehicle selection: Some models hold value much better than others

Specification: Certain features (air-con, ply-lining) will add value

Engine: Select the right power outputs for the working assignments

 

 

 



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