When surveyed, employees always rate both the availability and type of company car as one of the biggest factors when accepting a job offer. Employees like their company car to have good technology and prefer BMW, VW, Audi, Ford and Mercedes to other marques. However, cars purchased by a company that are used by employees or employee cars that are used for business attract lots of complicated taxes for both the business and employee. In addition, records have to be kept of the proportion of miles each car spends on business compared to personal use. Whoever buys the car will need to invest capital and possibly also pay some financing fees. However there is a simpler way – leasing!
Personal Contract Plan (PCP) Lease Terms
In this form of agreement, the renter only funds the depreciation of the car rather than buying it outright. Essentially they rent the car rather than ever take legal ownership. Usually, 3-6 months rent are paid upfront as a deposit. After 2 to 4 years the renter either ends the arrangement or takes ownership of a brand new car. The lease company arranges for the old one to be sold on the second-hand market. There may be a charge to the renter if the vehicle is damaged. In most of these agreements, there is also the potential for a bonus for the renter at the end of the lease term. If the car is sold for above a stated minimum price then this releases a bonus which can reduce the cost of the next leased car or allow an ‘up trade’.
For many SMEs, this sort of business leasing is the simplest and most flexible way to fund company cars whether they are essential for business or primarily a perk to attract talent. These lease agreements are particularly suited to providing a perk because better marques are much more affordable when leased rather than bought. This is because their depreciation is typically much lower than cheaper makes – as a result, the monthly PCP price can be comparable to alternatives which cost only half as much to buy outright.
Are PCP Agreements Here To Stay?
These contracts have been critical to maintaining the UKs healthy car sales and estimates are that 80% of all new cars are financed in this way. Second-hand cars are increasingly being offered on these deals too. Traditionally outright ownership was the only way to buy a car however people are a lot more used to the concept of exchanging a monthly DD for a product or service now and there is no stigma associated with a lease rather than buying. Because the agreements are simple to understand and there are no issues for the renter trying to sell a car at the end these agreements are likely to remain very popular.
Are PCP Prices Going To Rise?
It is the buoyancy of the second-hand market that underpins the availability and price of these deals. If second-hand car prices fall then you can expect to see these leases become more expensive. Because PCP deals have been so popular they are releasing a huge number of desirable cars into the second-hand market. At the moment there is plenty of demand so prices have been unaffected however at some point the high supply will start to flatten or reduce second-hand prices. Sterling has already weakened since the Brexit vote and this is predicted to continue. This is likely to drive up the cost of all cars particularly our favourite German brands. As soon as the companies who provide the leases think that second-hand prices are going to drop and the pound weaken further – they will put up prices so if you are thinking about a car lease you should probably arrangement quickly before prices go up!