End-of-contract charges can sour what was a beautiful relationship between fleet driver, fleet and leasing company, but they don’t have to if managed correctly.

Damages and missing equipment at the end of a contract can mean penalty charges for fleets and potential disputes and investigations before vehicles can be remarketed, so it’s important fleets are clear what is expected of them at the start of the lease.

It’s a problem the largest leasing company in the UK, Lex Autolease, took specific measures to fix late last year, completely rewriting its end-of-contract process to improve customer service.

Lex currently sees 13% of its vehicles returning at the end of a contract generating an invoice dispute regarding damage, which are referred to a dedicated specialist team to investigate and resolve. It’s a big problem for a company with a risk fleet of almost 290,000 vehicles.

Lex rolled out iPad-based technology for its vehicle inspectors to take video and photos of any damage found, which is also available for fleets to view. It is designed to increase clarity of process, communication, and consistency for both customers and vehicle inspectors, and was introduced after consultation with drivers and fleet managers.

Lex also simplified its pricing structure around damage types, which is available for customers in advance of their contract expiring. The pricing details all charges by vehicle size and damage type, and Lex believes it helps customers decide whether to undertake repairs on a vehicle before its return.
Invoicing for damage and movement will be automated, and customers can opt in to a series of alerts to be kept informed of each stage of the de-hire process.

Andy Hartley, commercial director at Lex Autolease, says: “The end-of-contract process can seem daunting for customers and it’s a contentious area across the whole industry.

“We identified that we could bring about increased consistency and transparency of our processes to improve the customer experience by employing our own vehicle inspectors to assess all vehicles returned at the end of contract, rather than using a mixture of personnel and multiple auction locations.”

Hartley hopes the new process will mean fewer surprises for all parties when cars come to the end of their contract.

Ogilvie Fleet managed to reduce its end-of-contract disputes from its fleet of 11,200 vehicles to just 2% after taking a “total transparency” approach. The leasing company discusses the damage charges with those customers and agrees a fee acceptable to both parties.

In 2014, a total of 61% of Ogilvie Fleet’s defleeted cars and vans attracted no charges. The average cost per vehicle across the 39% where damage charges were levied was £259, while the average charge across all defleeted vehicles was £100.

Irrespective of whether a company car is a supermini or from the executive sector, the firm’s end-of-contract damage recharge costs to return a vehicle to British Vehicle Rental and Leasing Association ‘fair wear-and-tear standard’ are £75 for a door panel, front wings and rear quarter panels, and £120 for a bonnet, boot lid, tailgate, bumper or roof.

Similarly, for light commercial vehicles, sample recharge prices include: £75 for door panels and front wings; £120 for side sliding doors, large side panels or bonnet, tailgate and bumpers; and £250 for a roof.
Other charges include alloy wheel refurbishment (£35), full valet (£40) and windscreen chips (maximum three – £40).

Jim Hannah, Ogilvie Fleet’s operations director, says: “We want customers to have a pleasurable experience when they lease vehicles from us and not for it to be tainted by a battle over end-of-contract charges.

“In our experience, an increasing number of our competitors are looking to make money at the end of a contract via damage recharging. Those leasing companies view end-of-contract charges as a profit centre, which is a very short-term strategy and something we deplore.”
Best interests

According to Hartley, most ex-fleet vehicles are returned to auction, rather than directly retailed, so buyers can decide what repairs to undertake prior to onward resale.

Lex has a flat policy of not repairing vehicles prior to them being remarketed, so it’s in the best interests of fleet drivers and Lex to make sure there is as little damage as possible, to reduce costs for fleets and to maximise values for the leasing company.

Hartley says the firm put the no-repair policy in place as its experience indicates that, in the majority of cases, the cost and delay incurred in undertaking repairs typically exceeds the incremental benefits you gain back when the vehicle is sold.

Speed to sale is important for retaining values at auction, but there is also a part to play with stock coming to market in ready-to-retail condition.

Simon Henstock, BCA UK operations director, says: “In an ideal world, every ex-fleet vehicle would be presented for sale in ready-to-retail condition.  However, the reality is that there are prospective buyers for vehicles across the condition range, accepting that this will always be reflected in the price achieved and – potentially – the time to sale.

“By offering cars or vans in ready-to-retail condition, vendors are making their vehicles attractive to the very widest buyer base and creating demand.  This inevitably leads to a quick sale and the strongest possible price performance.”

Andy Brown, managing director CD Auction Group, agrees that vehicle condition is increasingly critical. He says leasing companies looking to attract higher values should do a measured amount of remedial work to bring a vehicle back up to ready-to-retail condition in order to increase the speed of sale.

He says: “Any panel damage with large dents or obvious visual damage must be repaired to attract bids. Cosmetic work should be handled on a value-for-money basis.”

What fleets can do

Fleets can utilise a standard checklist for drivers to complete prior to handing back vehicles to act as a reminder and ensure that all items – such as spare keys, parcel shelves, etc. – are returned and that the vehicle is roadworthy (e.g. checking windscreens and tyres to ensure the vehicles remain road legal).

Fleets can also undertake vehicle repairs through their accident management provider prior to a vehicle’s return to make sure they avoid end-of-contract fees. However, this could impact on insurance costs, which needs to be balanced against the savings generated from avoiding charges.

Henstock says: “Damage is a fact of life for even the most careful drivers, so it is important to have the procedures in place that identify any issues and then deal with them sooner rather than later.

“It is a better strategy to ensure damage is reported early and repaired quickly rather than waiting for the end of contract and repairing it then.  Damage to trim and bodywork will generally worsen if not dealt with swiftly, leading to bigger bills and more delays at remarketing time.”

BCA advises mid-term inspections as a management control to pick up potential damage, which can then
be rectified.

Hartley says: “There is always scope for improvement, and fleets need to consider the pros and cons of recharging drivers for the damage incurred on vehicles when defining their car fleet policy.

“Although this practice is unpopular, it places a greater onus on drivers to ensure that they look after their fleet vehicles.”

Mike Cooke, Fleet Europe’s fleet operations manager, suggests those businesses that do need to carry out repairs should find commercial repairers that deal specifically with fleets because they can save time and money compared with private repairers.

Private repairers need to ensure profits per job, and focus around each vehicle as an individual project. For fleets, this approach is costly and does not reflect or deliver the level of service required. Cooke believes fleets can save up to 70% on end-of-contract damage costs by going with a commercial repairer approach.

In terms of financial savings, refurbishing rather than replacing a damaged alloy wheel can also avoid unnecessary expenditure.