In the current depressed economic and political climate, business confidence has remained suppressed.
To skirt around uncertainties about the future businesses have avoided incurring any unnecessary capital expenditure, opting instead to sweat their existing assets – especially when it comes to transport and logistics. However, there is a way to avoid this last resort altogether, says John Loxton, General Manager of the Fleet Management and Leasing Division at WesBank.
For many of South Africa’s businesses, logistics and transport are as much a requirement as having a tax number. Whether it’s a fleet of five delivery vehicles for drivers, hundreds of company cars for sales representatives, or an entire transport division – corporates more than likely have to budget for the costs associated with transport and mobility.
For the first quarter of 2016, the RMB/Bureau for Economic Research (BER) Business Confidence Index remained unchanged, compared to the previous period. Confidence levels among manufacturers collapsed to levels last seen during the 2009 recession and the overall outlook is an expectation of further weakness in GDP growth. Combined with rising interest rates and a weaker Rand, businesses can’t be faulted for hesitating to spend capital.
Traditionally this has meant extending the replacement cycle for assets. Instead of spending capital on new vehicles, businesses opt to increase operating costs in the form of extended maintenance on ageing assets. However, this is a short-term solution. This could keep those cars, vans, and trucks on the road for a while longer, at the expense of optimum resale values and increased downtime.
A more financially savvy approach would be to treat all transport-related costs as operating expenses, through a full maintenance lease – also known as FML. The FML model optimises cash flow and allows businesses far more flexibility – for both up- and downscaling.
These solutions have evolved and are now completely flexible and transparent. In our experience this allows customers to structure leases that suit their business requirements. Further value is added through managing clients individually, monitoring their fleets and then providing valuable feedback that allows them to restructure their lease contracts based on usage trends. This level of transparency affords fleet and finance managers the opportunity to proactively reduce transport-related costs at a fixed rate.
As a financial decision, FML makes perfect sense. It provides fleet operators with the lowest cost of acquisition, using a discounted cash-flow analysis to illustrate the difference between FML and more conventional acquisition methods. At WesBank we are also able to offer customers rental facilities without this having a negative impact on their credit lines. Businesses also benefit from our expertise and industry partnerships, which deliver exceptional operational efficiencies.
Most importantly, with a mandate to deliver exceptional service we build relationships with our customers to gain an intimate understanding of their business requirements. Through this, we’re able to deliver FML solutions that reduce transport costs.
Those that need to expand or replace their fleets can easily gain access to the vehicles they need without spending capital or carrying depreciating assets on their balance sheets. At the same time, they don’t have to be concerned about maintenance and administration costs, as full maintenance leases cover these costs and even offer replacement vehicles as an option.
In cases where businesses face difficult trading conditions or need to free up their cash flow, they’ll be able to cancel a lease at any time, thus immediately remedying the situation. This is in stark contrast to financed assets where a small business could have to settle outstanding loans, most likely incurring substantial losses.
Of course, the leasing route isn’t a one-size-fits-all remedy. Businesses should use experts who are able to align to their values, provide the best advice and tailor a solution that perfectly meets their business needs.