Surprisingly some companies continue to buy their company cars rather than lease them. Apart from certain cases when purchasing can be more cost effective – one example being when the vehicles are going to be doing very high mileage – it is hard to understand why they opt for this method of acquiring company vehicles.

For most companies, leasing or as it is more commonly called in the UK, contract hire is a far more effective option. There are many uncertainties attached to vehicle ownership; the main one being the most important question, what might the vehicle be worth when they come to sell it?

It’s very difficult, who could have predicted the oil price in 2008 and the effect it had on some of the larger cars, or the dramatic downturn in world economies that followed shortly after. CAP which is used extensively as a guide in the motor finance industry is very accurate when it comes to predicting future values but they can only base their predictions on what is known at the time.

The same applies to leasing companies; they try to take everything into account when it comes to residual values. Sometimes they get it right and on other occasions they suffer huge losses. So why don’t they build a large margin into the price to allow for what may lay around the corner and hit residual values? The answer is simple; the contract hire market is such a competitive business that they cannot do this and still retain market share, the market is very price sensitive.

If a company owns its cars rather than contract hiring them, it is when it comes to dispose of the vehicles, that there is most disruption to staff time; having to advertise and prepare the vehicle for sale and deal with prospective purchasers, or alternatively the financial loss of having to dispose of cars through the trade and accept a significantly lower price.

There can be a lot of comfort in having fully budgeted motoring costs; knowing at the outset what a vehicle is going to cost, right down to the last penny, which is just not possible when purchasing a vehicle.

There is also the question of capital outlay it seems extraordinary that some companies tie up something in the order of 350,000 of their own money on a relatively small fleet of perhaps 20 cars. Some do use car finance or what is better know as hire purchase or a finance lease, so at least they do not tie up their own capital but it doesn’t help with the very genuine worries regarding residual values.

Considering all the benefits attached to contract hire; being able to accurately plan your future motoring costs and reduce staff time spent on running the fleet, by opting for a maintenance contract, one wonders why this form of financing is not more widely used.