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The way you finance vehicles affects your profit line. Andy
Moore reviews the
various payment schemes on offer from manufacturers and independents.
you know the make of truck you want to buy, you have the work lined up and are ready to sign the contract, But there's still one major issue to sort out: how do you finance the vehicle as cost effectively as possible?
Finding the best way to finance an entire fleet or even a single truck can be a daunting business. Manufacturer's finance schemes encourage brand loyalty but independent sources of finance might offer slightly more flexibility, possibly with better rates of interest.
The manufacturers will aim to woo customers by boasting better product knowledge and more comprehensive finance packages than the independents:Dols might include a finance package covering maintenance, depreciation and running costs. Other features could include replacement vehicles for breakdown cover, road tax and cut-price insurance.
But while manufacturers are hell-bent on winning market share, the independent finance companies often can be more flexible. Major independents such as banks are able to offer huge borrowing capability, allowing large credit limits, while smaller companies might specialise in lease-only schemes to minimise risk.
The types of finance package operators will be offered include hire purchase, finance lease, and operating lease. Finance lease schemes can incorporate fixed or variable rate repayment plans which reflect the full vehicle value. Operating lease schemes can be set up to fund the vehicle's maintenance and service costs via repayments over an agreed time before the vehicle is handed back to the owner.These schemes entail making higher repayments based on vehicle depreciation, leaving the remaining capital sum to be met when the vehicle is sold.
The other main form of finance is hire purchase, which enables the customer to become outright owner of the vehicle after making a number of monthly repayments.
ICFL
ICFL is an asset lender, specialising in finance lease schemes for new operators. Sales representative Rod Thornley says: 'We deal with new businesses, companies with poor accounts or those which the prime lenders don't want to deal with. Manufacturers can afford to set lower deposits than us because they have a lower risk factor."
Depending on the customer ICFL can offer advances from il0,000, with repayment terms ranging from a minimum of 12 months up to seven years. Repayment profiles can be tailored to meet individual business requirements; for example seasonal payments or VAT deferment to ease cash flow.
While manufacturers will underwrite finance agreements on the basis that customers will pay, ICFL underwrites its deals based on potential non-payment"Under operating leases it is easy to pay for a truck because a customer knows what his overheads are going to be every month," saysThornley. "Manufacturers mostly sell trucks on cheap interest rates but they can reclaim the difference by overpricing the vehicle from the outset."
With the haulage industry traditionally working under very tight margins,Thornley says his business has had to become tougher on what it lends to customers
Paccar Financial Des funding arm, Paccar Financial (PF), reckons its range of finance promotion schemes set it apart from the competition.
More and more customers are becoming shrewd about how to fund vehicles," says PF's Russell Patmore."People know interest rates can move favourably three to four months after they start buying a vehicle. Because of long lead times on ordering a truck, customers realise they can be better off in a few months' time."
Patmore believes his company offers advantages over banks and other financiers in the way it can package deals with maintenance contracts and deliver structured deals:"Banks generally tend to like a 10% deposit, followed by 'X' number of repayments.We are able to do cashflow-matched deals whereby we can tailor the amount the customer pays throughout the year according to how well their business is doing."
PF offers packages in which customers can reduce repayments during quieter months of the year and increase them through busier periods. Like all the large manufacturers, the company says its APR rates depend on the product, the customer and the duration of the repayment plan. When asked if the company's APR rates are below those of the banks, Patmore answers a definite "no".
Unlike the independents, which are not so concerned with brand loyalty, Daf believes repeat business is important to secure future sales."If we just sell a truck and walk away from the customer we might only sell a vehicle once in every five years," he points out. "We have a strong relationship with customers throughout the life of the finance contract, whether it's direct debit, annual statement or servicing and maintaining a vehicle."
MAN Financial
MAN Financial funds 510/ of all new MAN-ERF trucks sold in the UK. The company provides a range of packages, including lease and operating finance, as well as hire purchase. Depending on the customer, the company will consider financing mixed fleets.
Other features offered by MAN Financial include a saleand-lease-back scheme in which a customer owns the assets, which can be bought and refinanced.
Elliot Lennick, the chief executive of MAN Financial, says in-house financial arms can offer customers an indepth knowledge of both the truck and finance packages: "We are able to offer a wider product portfolio over independent finance companies," he adds."Some banks are limited to more 'on balance sheet' products such as hire purchase, although a growing number are offering operating leases and are prepared to take residual risk."
The company believes it is more flexible than independents and banks in the way it trades with customers. Unlike some independents, MAN Financial is involved with the entire funding process. from the baying of the assets to disposal.
Its APR rates are described as"competitive" and -in line" with those of competitors. -Operators should be careful when buying through an independent finance company," Lennick adds.
"If the vehicle is financed on an operating lease they should check the return conditions such as where the vehicle is going back to and under what terms."
With vehicles financed under contract hire agreements. he says, operators have peace of mind that their truck is being serviced by the manufacturer. Lennick reports that his company has seen a steady increase in operating lease and contract hire packages, which represent 80% of its business.
"We have seen a trend towards these packages because they look after an entire transaction in one payment including depreciation, fi n once, maintenance and road fund licence," he says. "But when interest rates start to decrease, and borrowing costs increase, hire purchase schemes become more popular."