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Leaseback rise driven by changing business models and transition to EVs

Many businesses are unsure of cashflow, especially with the furlough scheme ending in September. With Government financial support lessening, many companies have taken the view that they need to build up cash reserves to manage the next few months.
Rory Mackinnon ARI Sales Director 1
Rory Mackinnon ARI Sales Director 1

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July 1, 2021

THE number of businesses looking to sell and lease back their fleets has dramatically increased in 2021, with applications for this refinancing method up fourfold in the first six months of the year.

ARI Fleet Sales Director Rory Mackinnon said the the underlying reasons being the changing profile of vehicle usage and the need to release cash back into businesses.

He added: “Over the past few months, we have seen a significant fourfold increase in applications for our FlexBack sale and leaseback product as fleets get to grips with the new normal. It seems that as lockdowns relax and working practices become more predictable, companies are taking this time to make long-term strategic decisions – with one conclusion being that they don’t need vehicles on their balance sheet tying up much-needed cash.”

FlexBack allows fleets to refinance their vehicles without any effect on day-to-day operations while keeping the flexibility they need to maximise their return on investment. 

Many businesses are unsure of cashflow, especially with the furlough scheme ending in September. With Government financial support lessening, many companies have taken the view that they need to build up cash reserves to manage the next few months.

MacKinnon said: “The idea has always been with sale and leaseback that refinancing assets frees-up cash to be used elsewhere in the business. And in the current climate, cash reserves and cashflow is a crucial consideration; also, with low-interest rates, moving from an ownership to leasing model is financially efficient.” 

Then there is changing usage profiles, maintenance issues and uncertainty around residual values – all due to the pandemic.

“A lot of assets haven’t been used as much in the past year, so have lower mileages and running costs than were budgeted for,” said Mackinnon. “That means a fleet could be sitting on an asset with a much higher value than expected. By refinancing them, they can achieve actual market value and refinance on a transparent and flexible model. Allowing them to de-fleet those vehicles that aren’t needed when the used market is especially strong and keep those vehicles needed for longer based on their own needs is also a benefit.

“And of course, because our FlexBack product gives them full transparency over SMR costs and allows fleets to operate their vehicles as required with no end-of-life damage or mileage charges, they can make the decisions that work for them.

“Previously with sale and leaseback products, many businesses looked at them and decided not to go ahead because they were swapping the flexibility of ownership for a more rigid contract hire proposition, and the benefits of a cash injection didn’t outweigh the increase in contractual obligations. But with FlexBack, they get the best of both worlds: finance and flexibility.”

Another reason for the move to FlexBack is electrification. Businesses are looking at the next five years and are unsure what effects the move to electric is going to have on their fleets. By moving to a leased model now, they can hedge their bets and not end up exposed to ageing owned fleets that then cost a business more to move over to electric.

MacKinnon added: “Many fleets do not know at the moment how long they want to keep current vehicles for with the onset of electrification, and so FlexBack allows them to keep those vehicles operating and then defleet them at a later date and move to EVs when it suits them. It removes a lot of the risk for the business at a time when they are managing more, and more varied, headwinds than ever before.”

There are also issues surrounding new vehicle supply, particularly among commercial vehicles. Some models have a waiting list of around 12 months – and this is prompting companies with a heavy reliance on CVs to shift their business models to take account of these potential delays by ensuring they have the maintenance and funding flexibility to cover all eventualities.

 

 

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Chris Wright

Chris Wright

Chris Wright has been covering the automotive industry nationally and internationally for 30 years. Following spells with consumer titles he became News Editor of Automotive Management (AM), Editor of Automotive International, International Editor for Detroit-based Automotive News, and Editor of Dealer Update. He has also co-authored several FT Management Reports and contributes regularly to Justauto.com

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