August 2009 - Sale and Rentback
Northgate Vehicle Hire introduced sale and rentback early last year and is believed to be the only rental organisation to promote the initiative to businesses.
The company has already converted more than 1,200 vehicles across many sale and rentback deals allowing small and medium enterprises across the UK the opportunity to free up capital and has assisted blue chip organisations in halting escalating costs so they can concentrate on core business activity.
However, Northgate Managing Director UK, Phil Moorhouse confesses that demand has been 'less than we expected' particularly in an economic climate in which access to funding has been restricted for many companies.
He said: "We continue to believe that sale and rentback is an excellent mechanism to enable businesses to reduce risk and introduce flexibility into their fleet operations and that must be the prime objective of every organisation."
Northgate has undertaken research to understand why demand for sale and rentback and a move to the company's fully-flexible NORFLEX rental product has been below anticipated levels.
Mr Moorhouse said: "Companies that are already utilising NORFLEX now realise the fleet flexibility that it offers, particularly in this economic climate. These businesses have been able to use the sale of their fleet to generate cash for their core business activity - cash that may have been harder and expensive to obtain elsewhere.
"But, we believe that falling vehicle residual values have influenced businesses not to make the move. Current vehicle values are below the figures 'booked' by organisations so they are not prepared to sell. Instead, they are extending replacement cycles and depreciating the vehicles further.
"Rather than opting for sale and rentback and fleet flexibility, these organisations are buying time by extending replacement cycles while they decide future fleet strategies."
But Mr Moorhouse maintains: "Companies that are taking this route are only postponing crucial decisions. Sale and rentback is a fantastic way of moving into flexible rental and, in the current climate raising cash. Companies should focus on the long-term benefits of having fleet flexibility."
Commenting on the fact that other rental companies have not introduced the concept, Mr Moorhouse said: "I am surprised that sale and rentback remains the preserve of Northgate. However, rental companies need capital to offer sale and rentback and Northgate has that."
