Long Term rental
Why company prefer to RENT than PURCHASE …
During the economic crisis period of 1988 & 1999, many local companies began reviewing and analyzing their operations with the hope and determination to make it vital in serving the purpose well. Vehicle management & ownership is one of the aspects that companies look upon to save cost and provide excellent management efficiency. There are few factors that prompted these companies to look into:
Car Purchase & ownership
Prior to the crisis, many companies prefer to purchase cars because of the potential gain from the disposal. However, they are now taking a different approach into cash management after considering the resale price, disposal profits and the tax implication.
Cars are normally regarded as non-revenue generating assets. Many companies begin considering car rental on a long-term basis. When cars go on rental, the rental is immediately written off as an expense, hence less tax is being paid. Furthermore, cash can be reserved for their core business.
Cost projection
When a company signs up a long-term car rental contract, the cost is therefore, fixed over a period as stated in the contract. Hence, the uncertainty of future operating costs are eliminated
and the focus is on the core business operating cost. Our target market is the fleet owners with 300 – 400 vehicles i.e. beverage distributors, courier companies.
Allocation of resources
When a company has a fleet of cars (10 cars & above), you need dedicated people or a department to manage the fleet. Some of the companies, which are in negotiation with us, have as much as 450 cars.
The fleet department will have to deal issues such as:
- Maintenance & repair
- Insurance & road tax
- Authority compliance
- Accident & breakdown
- Insurance claim.
The number of man-hours involved to facilitate these resources can be quite substantial. In the car rental scenario, the man hours required can be reduced or eliminated completely.
Reliability and Quality of Services
Another important aspect to be considered is the performance standard in the rental environment; the relationship between customer and supplier. Being a supplier, the car rental operator has to perform towards a satisfactory standard, otherwise, the contract will be terminated. In the event of such, the cars will be owned by the company, the fleet department will have a fixed cost for the company and it will be difficult to measure the performance standard of internal staff, department. Thus, termination of personnels will be very tedious and a difficult process to manage.
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