When you add up the costs, it can be miles cheaper to...

Not so long ago, new UK car sales were racing ahead, fuelled by confidence in the economic recovery, but car production and sales have since gone into reverse and some car dealers are warning that the slump in new vehicle sales look set to accelerate.

UK car production fell by 13.7% in June compared to a year earlier - the third month in a row that output has fallen, mirroring a decline in car sales.

There was a 9.5% fall in UK sales in the first six months of 2017 compared with the equivalent period last year, according to the Society of Motor Manufacturers and Traders (SMMT).

“There has been a mist around the macro-economic picture,” said Andy Bruce, chief executive of car dealer group Lookers, who suggested that new car sales have fallen in this country because the economic uncertainty caused by Brexit is weighing on consumers.

However, there is another major reason why car sales may be falling, as Adam Feather, director at Robert Anthony estate agents, explained: “The moment you drive a new car off the forecourt, it loses a significant chunk of its value.”

He continued: “We find that it is generally cheaper to lease vehicles for between two and four years, and then exchange it for a new model, without having to worry about car depreciation or the need to stump up large sums of money to buy a car, enabling us to save funds which we can use to invest in other areas of the business.”

Nick Horan, director of Belvoir Lettings Dundee, is another agent who always hires cars for his business, rather than shell out more to buy vehicles, having just agreed a deal to rent a Toyota Aygo, valued at list price of £8,995 to buy, on a three-year lease at a cost of £121 + VAT per month, with a maximum mileage limit of 35,000 over the rental period and nothing to pay up front.

“The bottom line is cost, and it works out much cheaper to lease a vehicle, which is under warranty in case something goes wrong with it, rather than purchase one, as we do not have to suddenly stump up large sums of cash to buy a car and this helps to boost our cash flow,” he said.

But when it comes to car leasing, Horan (right) points out that it is not just the rental price that agents need to take into consideration.

He continued: “There are a host of other things that agents need to think about before entering into a rental agreement, such as the unexpected costs associated with maintaining the car, the price of tyres, insurance, among other expenses. Also, what annual mileage will the car be doing?”

Mileage

Before you decide which mileage option is best for you, it is important to understand how mileage will affect your monthly payments.

Most car manufacturers and dealerships place restrictions on allowed mileage for leased vehicles to avoid excessive wear and tear, in order to help to ensure that the pre-determined residual value of the vehicle at the end of the lease is maintained.

To make sure that the value of the car is maintained, dealerships will adjust your monthly payments to match the mileage option you choose, with higher mileage lease options often resulting in higher monthly payments.

“The average mileage I’m asked to quote for is 12,000 miles a year but if you’re doing more than this you’ll need to be honest about it because going over the agreed amount will result in being charged for excess mileage,” explained Haley Chavner (left), an expert lease advisor, at Cars4Agents, which is powered by Planet Leasing.

Other considerations

Because the vehicle must be return in a well maintained condition, Chavner advises agents to keep their car “clean, serviced and not to treat it like a drag car”, but insists that does not mean “you have to handle it with kid gloves”.

She also explained that maintenance options are available “for a little extra” and these tend to cover things like mechanical elements, tyres and servicing costs.

Agents are also responsible for insuring the vehicle and should take fully comprehensive insurance with a lease hire vehicle, but Chavner says it is often possible to find fully comprehensive cover cheaper than third party with some insurance providers.

If the agent is running older cars that they own, then the chances are that the vehicles will require money spent on them when they go wrong as there is no warranty on the vehicles and they have to pass an MOT every year.

But if the agent was leasing vehicles on say a three year deal, then any breakdowns should be covered by the manufacturer warranty and the cars will be returned before any MOT tests are required.

“New cars are not required to have MOT’s checks until the 4th Year so if your lease is over three years you won’t have to worry about this,” she added.

The best cars for 2017

There are obviously plenty of cars to choose from, but what types of cars should agents currently be considering for hire?

“Right now my top pick fleet car for negotiators is the Fiat 500,” said Chavner. “They’re nippy, stylish and look fantastic wrapped in branding.”

She continued: “I am also a fan of the ‘smart fortwo’ which is great for squeezing into tight spaces and running around town between appointments.

“The Renault Clio and Peugeot 108 have the advantages being affordable city cars which also tick boxes for efficiency, handling and comfort.

“As for ‘executive models’ you’re really looking for something that’s going to handle well, keep the fuel consumption down and also convey the right impression to your customers. A red Ferrari might be slightly overkill, however tempting.

“Personally, I think nothing says professionalism like the Mercedes C Class and Audi A4 Saloon which offer practicality, comfort an impressive spec as standard.”

Make your mark

Workplace perks like a stylish looking new company car, which can form part of a comprehensive benefits package for employees, with all tax and servicing included, can be used to incentivise staff by providing a grading structure, from entry level all the way up to top level vehicles, ensuring that staff do not just feel valued, but are also provided with a decent, well maintained vehicles to get them to and from appointments.

What’s more, cars can be used to enhance a company’s brand presence within the areas in which they operate, with a printed vehicle wrap that can help reinforce an agent’s strength and reputation as an established agent in a local area.

“Whether it is our estate agency boards or our branded cars, all our marketing efforts are done with the thought of keeping our name in front of our existing clients,” said Yasser Elkafass (right), director at Adam Hayes estate agents.

“Our in-your-face marketing strategy also helps us generate new business by acting as a visible sales tool.”

Tax-efficiency

Aside from potentially saving agents’ money and extending the opportunity to promote the company brand, opting to lease a car, as opposed to buying one, could also present a company with substantial tax benefits.

There are different allowances for the car and the maintenance element of the contract, with agents potentially able to offset car rental costs against tax, while also claiming money back on VAT.

Pool cars, for instance, which are for 100% business use, enable businesses to claim back VAT, although it is worth noting that the percentage the business is able to claim back is dependent on the fuel emissions of the individual vehicle.

Phil Slyfield (left) of Balgores commented: “Quite simply for cars with CO2 emissions of 130g/km or less 100% of the rentals are allowable.

“For cars with CO2 emissions greater than 130g/km, 85% of the rentals can be deducted from a company’s taxable profit.”

He added: “Road tax is covered for the whole rental contract term, along with a full manufacturer’s warranty.”

Also, on a personal lease hire agents are not subject to the ‘benefit in kind’ tax you would ordinarily pay on a ‘company car’. Your VAT is included in the contracted price of the lease so no unwanted deductions from your wage packet.

The downside of leasing

As attractive as a lease may appear, there are a number of disadvantages to hiring a car over buying one.

It can be costly to exit a contract hire agreement should you decide that you have chosen the wrong car or inadequate contract mileage.

You will also be charged for repairs and damages if you return the car in a condition that is considered beyond ‘fair wear and tear’. These charges can include replacing lost or broken keys, dents, scratches and you will also be charged for missing or lost service history, none road worthy tyres and scuffed wheels.

Words of wisdom

Despite some of the potential pitfalls, we leave you with the words of John Paul Getty, the oil tycoon, who once said: “If it appreciates, buy it. If it depreciates, lease it.”

Contacts:

- Lookers

*Marc Da Silva is Estate Agent Today and Letting Agent Today Features Editor. You can follow him on Twitter @propertyjourno