Strong Arguments For Using Leasing Rather Than Cash

Friday, 22. August 2008

Peter Hollinshead, head of vehicle finance at HSBC Bank has produced a report explaining why Contract Hire is the way for even cash rich companies to fund their vehicles. The same reasons can be used for explaining why small companies and consumers should consider leasing as it is the most predictable and cost effective way of funding cars according to Hollinshead. As he explains, not only have used car prices dropped considerably but it is becoming increasingly difficult to sell cars. He acknowledges the arguments put forward by cash rich companies in the past, ie. they have no need to borrow so they avoid interest charges included in the lease rentals and they maintain total control which is shared with the leasing company if you lease your cars. However, even if you disregard the drop in used car values he further explains that arguments put forward by companies do not always stand up to scrutiny. Using Net Present Value calculations and referring to the time value of money he puts forward the argument that buying cars is not putting cash to best use and suggests that leasing produces a better return for shareholders. The same holds good for personal leasing. The situation is improved further when you consider the bonuses given away by manufacturers to leasing companies that are hidden away in the monthly rentals. Hollinshead sums up by saying ‘Overwhelmingly the case stacks up for contract hire. The days of outright purchase are going and it is very difficult to justify owning vehicles as the best option.’ Glad he agrees with something I’ve been banging on about for years. By Graham Hill