Fleet Jargon Explained Part 6 Fleet Jargon Explained Part 6
Rentals - Periodic payments (usually monthly/ quarterly) by lessee (user) to lessor (owner) to cover all the cost factors including the lease agreement. Usually they are fixed for the agreement period, and always attract VAT.
Relief cars - Most contract hire agreements which include maintenance, also provide use of a relief or temporary replacement car if the subject car is off the road beyond a specified period (eg 24 or 48 hours). Many such provisions are made through rental companies appointed by lessor.
Replacement cycles - The period of time a vehicle will remain on a fleet before being replaced with a new or newer vehicle. Decisions should be based on valid criteria whether under ownership or leasing, and usually defined as a combination of annual time and mileage such as 3 years and/or 60,000 miles. Length of replacement cycle usually based on vehicle type, reliability, cost and employee status.
Residual value - This is the final value of the vehicle when it comes to the end of its life on the fleet. It reflects the second hand worth of the vehicle in the often volatile used car market. The purchase price of the vehicle less the residual value provides the vehicle's actual depreciation cost, which is typically the largest single operating cost of a vehicle.
Risk management - Minimising the company's exposure to risk, typically from an accident/ health and safety view point. Should always start from a proper risk assessment of the actual "at work driving activities" found in the business. Management options may include driver training programmes, or reviewing company procedures regarding the length of a working day and hours spent behind the wheel. Again within the fleet market there are specialist suppliers of these services.
Sale and leaseback - If a decision is made to move into leasing from outright purchase it is usually best to change as quickly as possible. Sale and leaseback is available from most lessors and involves them buying existing car fleets at agreed value (eg Glass's Guide/ CAP; or similar). Each unit is allocated a "remaining life" to end of "normal" replacement cycle, with rentals calculated accordingly. When they are finally defleeted new leased vehicles are introduced. This system provides rapid, easily managed transition into leasing/ contract hire - usually provides a cash surplus as well, from sale of owned assets. Watch terms for very old or very young units in the deal