“In the mature markets of Europe and North America the debate over whether it makes sense for fleets to use operational leasing to obtain the vehicles they need ended a long time ago,” says LeasePlan International managing director, Jose Luis Criado (right). “Companies have realised that by using operational leasing they are outsourcing fleet acquisition and support to experts who can do the job more efficiently than they can, allowing them more time to focus on their core business.”

The situation is different in less-mature markets, however, he says: “Remember that leasing is a sophisticated type of service and requires an infrastructure to support it,” Criado points out. What he means by that is that it needs everything from comprehensive dealer networks to an appropriate taxation structure.

“If a country does not have such facilities then leasing companies may find it more difficult to convince potential clients that leasing is more efficient than outright purchase,” he continues. “The same applies in markets that have a history of financial instability with interest rates that regularly rise dramatically only to plummet unexpectedly again.”

Some markets may have currency restrictions in place that can make it difficult for firms operating in them to repatriate all of their earning to their home countries. If they manage to do so then they may find that their home country taxes them heavily on their overseas earnings.

“If you’ve got cash trapped in this way then you may decide to buy your cars outright in the market concerned and use a management company to help you run your fleet,” says ALD Automotive chief executive officer, Mike Masterson (right). “We have some global clients who operate in over 30 countries and do something along those lines in perhaps a couple of them.

“On the subject of tax, bear in mind that some markets tax CO2 emissions particularly harshly and that that the Benefit-in-Kind tax fleet drivers have to pay can differ from one country to another,” he continues. “Some markets impose a wealth tax on more expensive cars while others tax all new cars heavily; Denmark is a good example.

“As a consequence new vehicle prices are not consistent, even across the European Union,” he continues. “In Denmark the basic price of new cars is in fact quite low, but the taxes imposed on them are high.”

Because government policies vary so much it can take longer for a leasing company to put together an agreement covering a number of different countries than a client might suppose, he says.

“Some customers believe it can be done in no more than three or four weeks,” he observes. “In reality however, legal, contractual and taxation differences can mean that it takes more like three or four months.”

A key advantage of dealing with the major leasing companies is their sheer purchasing power, Masterson says: “Businesses like ours buy a lot of cars, tyres, workshop hours and so on,” he says. As a consequence they can obtain them at far more advantageous rates than a small fleet can ever hope to; and can pass on the benefits accordingly.

“We can get stuff far cheaper than a firm only running a few hundred cars can ever hope to do,” says Hitachi Capital Vehicle Solutions chief executive, Simon Oliphant (right).

“The scale on which we operate keeps the per-vehicle cost of management low and gives us the ability to invest in innovative web-based systems,” says Masterson.

Masterson goes on to highlight some of the more-widely-understood advantages of operational leasing, not the least of them being that the lessor shoulders the residual value risk.

“Your costs are fixed, you’re using somebody else’s money, you’re not using cash that might be better employed elsewhere in your business to acquire depreciating assets and you’re reducing the cost of funding the vehicles you need,” says Oliphant.

“If whatever you are looking for costs £100,000 for the sake of argument then you may only be funding half of that because it will still be worth, say, £50,000 in five years time when it goes back to the lessor,” he continues.

“Admittedly there is interest to pay but it still works out a lot cheaper than hire purchase.”

Furthermore, the payments the client makes are usually tax-deductible, although the rules can differ from country to country. “If VAT is in force then it may not be possible to recover it fully if there is an element of private usage of the vehicle by the driver,” he points out.

There are some countries that impose restrictions on the use of an operating lease says Oliphant.

“In Turkey for example, you can’t use one to finance the acquisition of a truck,” he says. “The thinking is that firms that lease their trucks are doing so because they haven’t got the money to purchase them and if they are short of cash then they may not be able to afford to maintain them properly.”

There are exceptions to the rule. “If you are a fleet operator than you may be allowed to put a proportion of your trucks on a lease but you need a licence to do so,” he says.

“In some countries you can also face situations where all the vehicles are owned by a fleet operator and managed in-house because that’s always been the case and there is a reluctance to change,” says Masterson. “And strict labour laws may make it difficult for a fleet to get rid of existing staff.”

Anybody opting for operational leasing will have to answer a number of pertinent questions posed by the lessor. Aside from demonstrating their creditworthiness they will have to be able to tell the lessor exactly what their requirements are.

“If a customer wants to acquire a van fleet for example then a lot of the discussion will be about fuel efficiency and minimising downtime,” Criado says. “If however they are looking to obtain cars that will be used as perks for senior executives, then personal support for the individual using the vehicle may be the paramount concern.”

In some markets – China and India for example – that may involve providing a chauffeur. In others – Mexico and Brazil for instance – the lessor may have to arrange for the vehicle to be armoured to protect the executives inside it from attack.

Minimising the fleet’s carbon footprint may be a key issue. “Even though CO2 figures may not always be published outside the more mature markets, multinational companies may insist that the same standards must be adhered to regardless of which country they are in,” Criado observes.

“We also need to know basic things such as the make and model of the cars the customer requires, the duration of the contract, the nature of their business and the likely annual mileage,” says Masterson.

“While you should try to ensure that your mileage figure is accurate, a reputable operational leasing company will tell you if it is being exceeded,” says Oliphant.

“Some clients may of course be looking for a mobility package,” says Masterson. That can include a combination of things; a small car – possibly an electric one – plus a bicycle or maybe a rail season ticket.

Lessees should be careful not to include items in a lease that they do not really need.

“Replacement vehicles used to be included regularly, but they incur a cost and how often do you really need one?”, wonders Oliphant. “On the other hand if you are, say, maintaining railway tracks and only have access to them between 2am and 5am then the prompt provision of a replacement vehicle may be absolutely vital.”

No matter where in the world they are, businesses looking to pursue the operational leasing route would be well advised to ask a few questions of their own before they sign on the dotted line. That is especially the case when it comes to return conditions and any penalties that may be incurred if the agreement is terminated early.

“We make it absolutely clear to customers at the start what sort of damage will be classed as normal wear and tear when the vehicle comes back to us and what will attract a charge,” Criado says. “Unfortunately it is still the case with some leasing companies in certain markets that a low front-end price may mean that they will get their money back by taking a tough line on the condition the vehicle is returned in.

“So far as early termination is concerned, we really don’t want to charge anybody but we don’t want to lose out either because the vehicle has not been fully depreciated,” he continues.

“This is where our open calculation approach comes in useful,” he adds. “By using it we can demonstrate to the client that any charges we may have to impose are reasonable rather than excessive.”

Something all fleets should enquire about is the availability of data on the operation of their vehicles from the leasing company in an easily digestible form.

“In the past it was quite typical to go into a fleet manager’s office and see a pile of print-outs that had clearly never been looked at because the manager hadn’t had time, gathering dust in a cardboard box in the corner,” Oliphant says. What clearly makes more sense is to give the manager a readily comprehensive overview of what is going on plus the ability to drill down into the data if that is what is required.

“One facility we can offer is a fleet efficiency index,” he continues. “We analyse the data of all of our customers using 27 KPIs, remove the names of all of the fleets concerned, then publish the data to our clients so they can see how well or how poorly they are performing in comparison with other operators.

“The KPIs cover areas such as operating costs, environmental impact and safety.”

The debate over how leases should be treated in company balance sheets rumbles on, but Criado is relaxed about it.

“We are of course interested in the eventual outcome but we are not afraid of it,” he says. “Whatever happens, remember that if you buy your cars you will always show more assets on your balance sheet than you will if you lease them.”

Not that the accountancy treatment of leased vehicles is a huge issue for the vast majority of companies that LeasePlan deals with anyway, he stresses. They are far more interested in leveraging LeasePlan’s substantial buying power when it comes to purchasing vehicles and related services; and tapping into its expertise.

“There are some circumstances under which you may be obliged to show assets on your balance sheet,” says Oliphant. “If you operate in a regulated sector of industry for instance then this may be something that the regulator looks for.”

Keeping the regulator happy is likely to take precedence over balance-sheet concerns; because if the regulator is unhappy, the operator may end up losing a substantial slice of business.