LLD VS Leasing

Usage Financing: Why Long-Term Leasing will be the preferred alternative to Traditional Leasing in 2024

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Introduction

The world of automobile and equipment financing is undergoing a revolution: the transition to a usage-based economy. With the regulatory changes underway, full service leasing (FSL) stands out as a solution of the future compared to traditional leasing. In this article, we look at why operational leasing is gaining in prominence, and how regulatory changes are shaking up the leasing model.

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1. Financing Usage: A New Market Vision

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The concept of usage-based financing is no longer based on owning an asset, but on using it. This approach enables companies and individuals to benefit from the equipment or vehicles they need, without having to own them.

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• Benefits: Increased flexibility, reduced maintenance costs, and a positive impact on the balance sheet.

• Implications: By prioritizing usage, companies improve their cash flow and investment capacity, while delegating the financial risk of residual value and the often resource-intensive resale processes.

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2. Long-term leasing: a response to current needs

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Unlike leasing, which often involves an option to purchase at the end of the contract, full service leasing concentrates solely on the rental, offering companies a leaner approach in terms of management and costs.

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• Flexibility of long-term leasing: We offer adapted contract durations, flexible mileage packages and integrated services (maintenance, assistance).

• Adapted to new challenges: In the face of economic uncertainty and changing needs, long-term leasing represents an attractive, low-risk alternative.

3. Leasing in Decline: Regulatory Pressures

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New financial and tax regulations are making leasing less attractive, and even penalizing it. In particular, these regulations aim to :

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• Reducing the carbon footprint: Increasingly stringent legislation is driving the electrification of the vehicle fleet, making it difficult for traditional leasing to adapt.

• Limiting hidden liabilities: Leasing is often considered as an off-balance sheet commitment, but accounting standards are evolving to make it more visible, which complicates its accounting management for companies.

4. The advantages of long-term leasing in the face of new economic and environmental challenges

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In 2024, a number of trends confirm that full service leasing is better positioned to meet modern market challenges. Here's why:

• Environmental compliance: Leasing solutions are moving towards green vehicle offerings, making it easier to comply with environmental standards.

• Predictable budget: Leasing includes maintenance costs and associated services, which stabilizes expenses, unlike leasing where these costs can be unpredictable.

• No resale worries: At the end of the contract, users don't have to worry about asset devaluation, a concern often encountered with leasing.

5. Financing Usage: A Model Aligned with Consumer and Business Expectations

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Usage-based financing enables companies to align themselves with a societal trend: the functionality economy. This transition is beneficial not only for finances, but also for the environment.

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• Greater agility: Leasing enables equipment to be adjusted according to need, without heavy commitment - a crucial point in a fluctuating economic climate.

• Supporting sustainability: By integrating leasing solutions for electric or hybrid vehicles, companies are actively contributing to the ecological transition.

Conclusion: Long-term leasing, a future solution for businesses and individuals

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In the face of regulatory changes and increasingly usage-based expectations, full service leasing is emerging as the most appropriate financing model. Whether for economic, ecological or administrative simplification reasons, full service leasing represents an alternative more in tune with today's challenges than traditional leasing. Through long-term leasing, companies gain access to flexible, scalable solutions in line with sustainability imperatives.

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Real-life examples illustrating the advantages of long-term leasing

Example 1:

Electric Vehicle Fleet for an Eco-responsible Start-Up

A Paris-based start-up specializing in environmentally-friendly deliveries has decided to build up a fleet of electric vehicles to minimize its carbon footprint. By opting for long-term leasing, it benefits from :

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• Fixed monthly payments covering both vehicle leasing and maintenance, making it easy to manage budgets without unexpected costs.

• Flexibility to adapt the fleet: in the event of expansion or renewal, the start-up can simply adjust the leased vehicles at the end of each contract, without having to manage the resale of old vehicles.

Example 2:

An SME in the Construction Sector

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This SME uses commercial vehicles for its field teams and wanted to replace its fleet to meet current environmental standards. Thanks to LLD :

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• It can more easily switch to hybrid or electric vehicles without worrying about their rapid depreciation.

• The services included (maintenance and assistance) reduce vehicle downtime in the event of breakdown, thus limiting losses in operational efficiency.

Example 3:

A Multinational Wishing to Optimize its Balance Sheet

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A consulting firm with an international presence wants to reduce the accounting complexity of its multi-country vehicle fleet. By opting for long-term leasing :

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• Vehicles do not appear as assets or liabilities on the balance sheet, lightening the balance sheet structure and enhancing accounting transparency.

• The company benefits from the standardization of costs on an international scale with fixed monthly installments, simplifying the accounting management of subsidiaries.

Example 4:

Freelance Web Developer

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Freelancers who often travel to meet their customers want to use a quality car without investing heavily. With full service leasing :

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• You'll benefit from a recent, well-maintained car at a controlled cost, while avoiding having to tie up funds in a purchase.

• The long-term leasing contract allows him to change vehicles every 2 to 3 years to benefit from new technologies and reduced fuel consumption.

Our examples show how long-term leasing can be adapted to a wide range of needs, from budget optimization and flexibility to ecological and administrative objectives.

Sources :

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1. Usage financing and the functionality economy

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• Reports on the circular economy and functionality:

• ADEME (French Agency for Ecological Transition): Reports on the evolution of the economy of functionality and its impacts in various sectors. https://agirpourlatransition.ademe.fr/entreprises/economie-fonctionnalite

• Ellen MacArthur Foundation: Studies on the circular economy and usage-based financing models. https://ellenmacarthurfoundation.org/

2. The advantages of long-term leasing and flexibility

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• Market research on leasing and long-term rental:

• KPMG and EY regularly publish studies on the vehicle leasing market, long-term leasing trends, and corporate perceptions of leasing and long-term leasing.

• L'Observatoire Cetelem de l'Automobile: This annual report provides information on the preferred methods of financing vehicles in Europe, with a focus on long-term leasing and leasing.

• BNP Paribas Leasing Solutions: Publications on leasing market benefits and forecasts.

3. Regulatory developments and their impact on leasing

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• Financial standards and regulations:

• IFRS 16 (International Financial Reporting Standards): Analysis of the impact of IFRS 16 on lease accounting for companies, with a focus on asset visibility.

• Ministry of Ecological Transition (France): Information and press releases on regulations affecting green mobility, tax incentives for electric vehicles, and restrictions on combustion engines. https://www.ecologie.gouv.fr/politiques-publiques/leconomie-fonctionnalite

• European Commission: Reports on regulations to reduce CO₂ emissions, including targets imposed on transport and logistics companies.

4. Optimized accounting and simplified asset management

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• Analysis of the accounting impact of leasing and long-term rental:

• Mazars and Deloitte: Specific studies on the application of IFRS 16 and its effects on company balance sheets, particularly in the context of car fleets and equipment.

• Institut Français des Experts-Comptables et Commissaires aux Comptes (IFEC): Publishes notes and case studies on the impact of different financing methods, including long-term leasing, on strategic business decisions.

5. Ecological transition and the choice of green leased vehicles

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• Environmental reports and studies on the energy transition in mobility:

• McKinsey & Company: Studies on the adoption of electric vehicles and the environmental benefits of leasing.

• Fédération Nationale des Loueurs de Véhicules (FNLV): Data on the proportion of hybrid and electric vehicles in long-term leasing fleets in France.

• ICCT (International Council on Clean Transportation): Analyses and comparative data on CO₂ emissions between leased and long-term hire vehicles, in connection with greening obligations.

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