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Profit comes from use not ownership
Page 56
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by Johnny Johnson
VEHICLE PROVISION and renewal become more and more of a problem as finance becomes more difficult to obtain. The situation is further complicated as vehicle prices escalate alarmingly and the budgeted vehicle provision allocation which every prudent operator should have made becomes inadequate.
But making a budget allocation from profits for this purpose presupposes ownership of the vehicle either by outright purchase or through hire purchase. There are other methods of obtaining the use of vehicles without actually owning them and these are becoming more popular and widely used, particularly over the past few years.
Rental, hiring, contract hire and leasing are all terms which, because the conditions under which they are undertaken are usually tailored to suit the customer, are somewhat difficult to define precisely. All of them could be losely included in the term "leasing" for none of them involves the ownership of the vehicle by the lessee.
While hire purchase has tended to remain fairly constant in volumes during the past few years, leasing has made significant advances particularly in the field of finance leasing though it has not been possible to quantify this.
With a finance lease, which is usually negotiated for terms between three and five years for commercial vehicles, the lessor buys the vehicles and leases them over the agreed period to the lessee (the user). At the end of that term, the vehicles are still the property of the lessor and often the continued use can be negotiated at a very much reduced rate of payment.
This could represent a small percentage of the value of the vehicles.
On the other hand, by agreement, the vehicles might be disposed of for the best price which can be obtained and the money, after a deduction usually of the order of 10 per cent by the lessor, credited to the lessee. This might be as a contribution to his next leasing agreement.
That, in simple terms, is what a finance lease is all about and the finance houses and bank subsidiaries which normally finance such leases are, in general, happy to discuss leasing with propective lessees.