Simon Simmons, supplier relationship manager, Alphabet GB Limited, looks at the key considerations for fleets exploring funding options for LCV conversions.
Today, more than 80% of new light commercial vehicles require some form of conversion beyond that of the standard plywood lining. Well-managed conversions produce a safe, clean and organised workplace environment for employees while creating that all-important positive, professional impression with customers.
Traditionally, a two-stage approach to conversions has been followed; businesses would firstly take delivery of the van and then send it to a specialist to be converted. As ‘fit-outs’ have become more sophisticated – and complex in terms of technology and type approval by VCA and VOSA – they demand more detailed preplanning and coordination between all parties involved to ensure the vehicles are on the road and are ready for their intended business use from day one.
Key considerations:
- Funding
Leasing companies should be able to offer funding for a range of conversion types. The factors they take into consideration for these specialised vehicles are naturally rather more complicated and detailed than those for funding standard vehicles.
Highly specialised equipment, such as completely bespoke conversions, often lack a second-hand market. As such it may not be possible to obtain finance through the leasing company which is secured against the asset’s value. In this case, the most appropriate option may be to pay for the conversion outright, writing its value down to zero over a period of time.
Internal racking may retain some residual value when the vehicle comes to the end of its lease contract and may add to the vehicle’s second-hand appeal or (possibly) detract from it. It will be worthwhile for a business to work with an experienced LCV funding provider whose knowledge of remarketing will guide the discussion and help to deliver the most cost-effective financing option.
- Choice of supplier
If a business is considering financing conversions through a vehicle leasing company, it’s very likely that the latter will have a network of preferred conversion suppliers. We work with a national network of suppliers chosen on the basis of quality of work, location, volume capability, aftersales support etc. However, if a business already has a relationship with a converter (or manufacturer) that it wishes to maintain it can bring them into the mix from the beginning.
- Lifecycle
This is an important consideration, especially where the vehicle and the equipment installed have markedly different lifecycles. A good quality modular racking system, for example, might remain serviceable over the vehicle’s lifetime and could be used within two or even three successive vehicles. Therefore, a business could expect to get perhaps nine or 10 years of use from the equipment by refitting it into new vehicles.
By planning ahead and working in partnership with a leasing company and chosen converter – to anticipate the reuse of racking and other equipment, for example – the finance for the vans and the conversion equipment can be scheduled together to optimise the lifetime funding costs.
- Investing for lower operating costs
Payload, productivity and the impact on vehicle performance are huge influences when determining equipment specifications. There is a lot to be said for investing in systems that increase payload, save fuel and improve employee efficiency.
Today’s aerospace-quality composites and modular construction make lightweight and versatile conversions. However, the price of such systems can be significant, with fitting-out costs running well into the thousands of pounds per vehicle. That’s why it makes sense to roll these costs into the vehicle lease, which spreads the conversion outlay over the term of the contract, instead of committing a large portion of your capital up front.
- The end of the lease contract
When funding a conversion, the leased assets remain the property of the leasing company during the payment period. Depending on the type of funding used, the equipment must either be returned at the end of the contract or purchased with a final instalment or a ‘balloon’ payment.
It is important to discuss the various options thoroughly at the outset and be clear on what you want to achieve. If a business intends to transfer leased equipment to new vehicles at the end of the contract, it needs to be sure that the costs of transfers, repairs and refurbishment are all properly taken into account and costed into any monthly rentals.
Summary
With increasing awareness of the impact that different conversion specifications have on both productivity and lifetime operating costs, more fleets are choosing options such as modular, lightweight, reusable racking systems. As such, conversions tend to come with a higher upfront investment, and because the values of the vehicle and equipment are intrinsically linked, fleets increasingly choose to finance their conversion as a single package through their leasing company.
Businesses should choose a leasing partner that puts the emphasis on developing a close working relationship between the customer, conversion network providers and the leasing company. Only by harnessing everyone’s experience and input, can you deliver the most effective conversions through making smart, informed decisions on equipment, funding options and ultimately the lifetime operating costs.
