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The options for the acquisition of your next van have never been more numerous. The majority of small businesses still outright purchase their vehicles, and many of those purchase used rather than new. However, options are growing daily.
For the purposes of this article we shall concern ourselves with vehicles up to 3.5 tonnes gross vehicle mass. The principles involved in the funding and operating cost analysis carry-over into higher weights, but the second-hand value of larger vehicles is more difficult to quantify as they, more often than not, are built as chassis-cabs, with bodies from a separate supplier.
The simplest method of funding is to buy the vehicle outright. This is by far the most common way of sourcing a used van, but there is a growing market in nearly-new vans from specialist contract hire and leasing companies. Generally these are around six months old, the advantage being the initial price drop, but still with a balance of the manufacturer's warranty.
Used vehicles
Those businesses sourcing used vehicles will more generally look to vans in the second or third years of their life. If your own annual mileages are low, then ex-fleet vans can make a lot of sense. Although mileages will be high, full service history - particularly with an ex-contract hire vehicle - should maintain its condition despite a low price.
Having established the budget, the methods of funding open to you are solely in the form of loans, whether these be via finance through the vehicle vendor or independently. Look not at what the van costs now, and hence its payment structure, but what it will be worth at the end of the loan period.
With a three-year-old vehicle, the majority of the depreciation will have elapsed but the remaining period should be considered. As a saleable asset, the van must continually exceed the principle still outstanding against it. This is the greatest advantage of contract hire, the vehicle never becomes a financial asset of your business, more of which later.
New vehicles
The biggest mistake you can make in deciding which van to buy is to decide purely on the basis of purchase price. Do what the contract hire companies do. Look at whole life costs, which are usually expressed in pence per mile. This is the real cost of owning a vehicle and is the figure used by contract hire companies to set the level of monthly payments.
The whole life cost of avehiclee is calculated using the list price, the cost of servicing, fuel consumption and most importantly, residual value. This is by far the largest factor, it is the second-hand value of the vehicle at three or four years old which determines its real day-today cost. The list price is the least important consideration.
Although geared for fleets and with higher annual mileage assumptions than those covered by most builders vehicles, the figures are no less valid since the contract hire companies and vehicle trade looks to them for its calculations. The actual numbers involved in the residual value will change with lower mileages but for comparison the principles are perfectly valid. As residual values fluctuate after the introduction of a model and settle as the trade sees more used examples, we shall look at two established 3.5 tonnes vans with figures for the last quarter of 1998.
Comparison
Consider similar list prices for a Citroen Relay LWB hi-roof at £17,930 and a Mercedes Benz Sprinter 308D at £18,010. Using the respected Fleet Management Services figures for whole life costs we see that the more expensive Mercedes-Benz has a figure of 23.09 ppm {pence per mile) whilst the Citroen is 25.83 ppm, some 2.74p more per mile. Calculated over three years and 75,000 miles, that is a total difference of £2,055.
Over lesser mileages the difference is lower but it is in the analysis of the figures that we really learn where the differences are and how to use them to our advantage. Using the servicing and repair costs calculated by Fleet Management Services to include tyre, battery and exhaust replacement the Citroen shows £2,805 whilst the Mercedes-Benz is £2,618.
However it is in the residual value where the key lies. The Citroen is worth 25 percent of its purchase price at three years and 75,000 miles, in other words £4,482, whilst the Mercedes-Benz is worth 37 percent of its original price, some £6,663.
With a service costs advantage of £3,533 and a resale advantage of £2,181 the vehicles differ by more than the ppm figure over the life period. This is because although the biggest components of the whole life costs they are far from being the only components and fuel consumption and insurance ratings play a part too.
These figures are of course only examples on pricing, valid directly only if the two vehicles form your shortlist, you must obviously arrive here by assessment of payload, volume and standard and optional equipment levels. Here the Citroen and the Mercedes-Benz differ, but the rules of the game are fixed.
Contract hire
Whole life costs set the contract hire rates and there are schemes with or without maintenance. This is where your annual mileage comes into play. There is no point in paying for a full-maintenance package calculated on 75,000 miles in three years if you only cover 12,000 miles a year. However, look carefully at your obligations to maintenance under the contract hire agreement. Anything that may change the resale value of the vehicle will incur a financial penalty from the contract hire company at the end of the period.
The obvious advantage of contract hire is that it doesn't lock-up capital, the vehicle is not a capital item or asset and the VAT element of the contract hire charge can be reclaimed by VAT registered businesses. However you may prefer a lease-purchase agreement which allows you to operate the vehicle on a lease basis, and at the end of the period walk-away just like contract hire or pay a final large so-called 'balloon' payment and retain the vehicle.
A vehicle so purchased then becomes an asset, has retained value, albeit at its three-year life depreciated value, but has not held capital in large amounts. It may be better than buying a used van outright of the same age, as you have full control over its operation and history, which if you are careful will realise a higher final residual than the contract hire company's original calculation.
A development of such ideas is the PCP (Personal Contract Plan) originally a retail car initiative by large manufacturers to attract and retain customers. They are gathering apace as company car drivers are more frequently given the option of more salary and no company car Applying this to vans the manufacturers are able to compete head on with contract hire suppliers. However, for the van operator they offer little over the lease-purchase arrangement but at least will encourage more light commercial manufacturers into the sector.
In Conclusion
The builder who only looks at the list price for the choice of vans to suit the job will lose out. The one who spends time looking at whole life costs - and contract hire rates are the best indicator - will reap the overall benefits.
First posted: 1 April 1999. Last modified: 23 June 1999.
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The Vauxhall Astravan
1999 European Van of the Year
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