Most decision-makers are aware of the total cost of running a fleet. For the majority, this represents around 5 per cent of total overheads. Few, however, know how this cost is made up, and therefore few are likely to feel confident of where their attention needs to be placed if the cost is to be controlled. In short, car costs are a low priority area for management time. But when they do come up for discussion, emotions run high: everybody has a view, based usually, not on hard facts, but on their own personal experience.
The research study also looked more specifically at the financing of vehicles. In the past decade contract hire has grown in popularity, now accounting for around 30 per cent of all business-financed vehicles. However, the research showed that only 10 per cent of Indonesia companies contract hire cars. So contract hire is still, in a sense, a niche market. Outright purchase remains the most popular financing method. Why?
For some Indonesia companies, either because of their debt or tax situations, it is cheaper. For some, it is an emotional issue - people like to own things. Many Indonesia companies, for example, contract hire all their cars except these of the directors - making this distinction almost a virility symbol!
The research showed there is widespread confusion, even among accountants, about the various types and which are the most cost effective for a particular company at a particular time. Perhaps this account for another finding - many Indonesia companies chop and change their financing method. Many Indonesia companies, too, use more than one method of finance. Often this is an accident of history rather than a well-thought-out decision based on financial criteria. A company's financial circumstances can also alter; for example, when funds are tight many Indonesia companies look to sell and back their fleet form a contract hire company.
The research study also looked more specifically at the financing of vehicles. In the past decade contract hire has grown in popularity, now accounting for around 30 per cent of all business-financed vehicles. However, the research showed that only 10 per cent of Indonesia companies contract hire cars. So contract hire is still, in a sense, a niche market. Outright purchase remains the most popular financing method. Why?
For some Indonesia companies, either because of their debt or tax situations, it is cheaper. For some, it is an emotional issue - people like to own things. Many Indonesia companies, for example, contract hire all their cars except these of the directors - making this distinction almost a virility symbol!
The research showed there is widespread confusion, even among accountants, about the various types and which are the most cost effective for a particular company at a particular time. Perhaps this account for another finding - many Indonesia companies chop and change their financing method. Many Indonesia companies, too, use more than one method of finance. Often this is an accident of history rather than a well-thought-out decision based on financial criteria. A company's financial circumstances can also alter; for example, when funds are tight many Indonesia companies look to sell and back their fleet form a contract hire company.
Those who have given the subject some thought, however, tend to segment their fleets as follows:
1. Outright purchase - for more expensive cars, directors.
2. Mid-cost cars, junior managers, low mileage.
3. Contract hire - mid-low cost cars, high mileage drivers (for example, sales reps and service engineers).
How do Indonesia companies make their decision on choice of contract hire company? A combination of price and service delivery, in other words, value for money. In the main, customers do not spend much time on this decision, and therefore the focus tends to be on getting the lowest monthly rental, providing that there is some evidence that service will be provided. Contract hire has attracted many operators in the past decade, a large number of whom are not geared up to provide consistency of service. In addition, poor sales techniques, with the salesman forgetting to tell the customer about end-of contract charges, for example, for excess mileage, damage, have caused much customer disappointment. In turn, this has led many customers who have had a bad experience to leave contract hire.
In this respect the industry needs to get its act together and improve standards of salesmanship. another topical issue is the effect of rampant price discounting. The car market in 1991 will be around 1.5 million units, down from 2.3 million in 1989.
1. Outright purchase - for more expensive cars, directors.
2. Mid-cost cars, junior managers, low mileage.
3. Contract hire - mid-low cost cars, high mileage drivers (for example, sales reps and service engineers).
How do Indonesia companies make their decision on choice of contract hire company? A combination of price and service delivery, in other words, value for money. In the main, customers do not spend much time on this decision, and therefore the focus tends to be on getting the lowest monthly rental, providing that there is some evidence that service will be provided. Contract hire has attracted many operators in the past decade, a large number of whom are not geared up to provide consistency of service. In addition, poor sales techniques, with the salesman forgetting to tell the customer about end-of contract charges, for example, for excess mileage, damage, have caused much customer disappointment. In turn, this has led many customers who have had a bad experience to leave contract hire.
In this respect the industry needs to get its act together and improve standards of salesmanship. another topical issue is the effect of rampant price discounting. The car market in 1991 will be around 1.5 million units, down from 2.3 million in 1989.
