Posted in:

Lex finds British SMEs burdened by £6.7bn worth of depreciating vehicle assets

The company’s “Leasing Revolution” report estimates that over two thirds (68%) of the 1.5 million vans and light commercial vehicles registered to British businesses are owned by SMEs and bought using the company’s cash reserves or with a bank loan.  

Currently, the average SME-owned van or light commercial vehicle is eight years old. Based on Lex Autolease research, each vehicle will have depreciated by more than £10,000 since it was first purchased and will now be worth just £6,357. The figures demonstrate the significant cost of depreciation, but also the cash that SMEs could have tied up in a vehicle asset.

‘Our research shows that SMEs have a significant amount of capital tied up in depreciating vehicle assets, which could restrict their long term potential,’ explained Tim Porter, managing director of Lex Autolease.

‘The billions invested in vehicle ownership could be better used by businesses to pursue new growth opportunities, pay down debts or upgrade essential business infrastructure.’

The report also surveyed just over 250 senior SME decision makers, and found that the vast majority feel most secure with vehicle ownership, with over three quarters (77%) admitting to never having leased a vehicle before and more than half (54%) saying they are unlikely to consider leasing in the future.

However, with an average purchase price of £16,448 for a new van, Lex believes that SMEs could be better off leasing their vans, as costs of leasing are on average £817 for an initial upfront payment and £221 per month thereafter. Therefore those businesses that do consider leasing often do so for cashflow flexibility and regular access to new vehicles.

The survey also revealed how SMEs would invest the additional capital they could save if they leased vehicles rather than purchasing them. Just over four out of ten (43%) said the money would boost their working capital reserves, over a quarter (28%) would invest in new plant, machinery or IT infrastructure, and almost one in five (18%) would reduce their existing borrowings. 

Others favoured increasing their marketing activities (15%), expanding or establishing new premises (9%), investing in R&D (8%) and taking on more staff (5%).       

One of the main considerations for SMEs when selecting a light commercial vehicle is fuel consumption with just under a third (32%) highlighting this as an issue, which suggests small firms are still struggling with the effects of high petrol and diesel prices.  Other considerations are price (27%) and driving experience (13%).  

‘While larger businesses recognise the benefits of not saddling a depreciating asset on their balance sheet, it is clear the majority of SMEs still have a strong emotional attachment to owning their vehicles', Porter continued. 

‘However as the economic recovery takes hold, businesses are gearing up for growth, and many are under significant pressure to maintain working capital. By not considering leasing, companies are missing an opportunity to better use their capital for future investment.  While trading conditions might have improved, managing costs remains a primary concern, and with the price and fuel efficiency of a light commercial vehicle trumping the overall driving experience there has never been a better time to consider leasing.’

For more of the latest industry news, click here.