18/06/2002 - 22:00

Financing a fleet

18/06/2002 - 22:00


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Last week, WA Business News reported on the best times to buy new fleets. In his report this week, Gary Kleyn looks at different finance options available to businesses.

Financing a fleet

Last week, WA Business News reported on the best times to buy new fleets. In his report this week, Gary Kleyn looks at different finance options available to businesses.

FINANCING a fleet both at the initial point of purchase and during the maintenance and subsequent sale of the fleet can prove a costly exercise.

However, fleet managers now have a host of options that can fit into a company’s cost or asset minimisation program.

Easifleet managing director Mark Iriks said that, for his business, it was a matter of sitting down with the client to see what they were trying to achieve.

He said many large companies went for what they felt was the easiest option, often totally outsourcing their fleet management business through a lease management arrangement.

For companies such as BHP Billiton, this achieved the objectives of sticking with its core business while reducing its impact on the company’s balance sheet, and provided budget certainty.

To offset the risk in this case, the independent fleet manager would attach a premium.

Mr Iriks said another product, called the ‘at cost method’, provided a cheaper outcome for companies because everything was passed on to the client at cost, while the fleet manager took a monthly fee of about $30 a month per vehicle.

Some finance companies were also beginning to provide off-balance sheet finance, where payment is made at the point of sale of the vehicle through a rental adjustment.

Hire purchase was another method often adopted by companies because of its taxation benefits.

With hire purchases, no deposits are required, interest and depreciation are tax-free when the equipment is used to generate tax-assessable income, monthly payments and balloon payments are GST-free, while ownership of the vehicle transfers immediately once the contract is terminated.

Finance leasing was another option provided through finance companies and fleet managers, which, like hire purchase, allowed for tax-free repayments and no deposits, however the ownership does not transfer to the client at any point during the contract or at the termination of the contract.

But it was noveted leasing that had gained ascendancy in the marketplace.

Novated leasing starts out as a normal vehicle lease taken out by an employee. The employer, as part of the salary package arrangement, then pays the lease rentals for the employee. The assignment of the responsibility for payment of the monthly rentals to the employer is called novation.

Advantages to the employee are that they are able to build equity in the vehicle and have a personal say in the vehicle they can drive.

For the employer the benefits are that responsibility for the vehicle lies with the employee. When the employee moves on, so does the lease, which means the vehicles are not tying up the balance sheet.

Mr Iriks said that, while noveted leasing had been around for a number of years, it had really gained momentum in the past 12 months.

“Two years ago it was zero per cent of our business; 12 months ago 5 per cent of our business. Now its 21 per cent of our business,” he said.

“It is actually the biggest source of growth for our business. We are breaking records each month and we are expecting the growth to continue exponentially.

“We never dealt with these kinds of people before. Now we have got a brand new set of customers.”

p Next week a closer look at how salary packaging and noveted leasing can benefit both the employer and employee.

Auctioneers in tune

TWO of WA’s auction houses are joining forces next week to bring Perth its largest weekly ex-government and fleet vehicle auction.

The first of the combined winter auctions by Pickles Auctions and Easifleet Disposals is to be held on June 27 in Welshpool to cater for the growing trend toward auctions.

Easifleet managing director Mark Iriks said, through a unique facility sharing arrangement, Easifleet was able to enhance service to its clients.


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