Leasing rates across the US have skyrocketed in recent years, and expectations are they will continue to. Why companies are utilizing the benefits of leasing – cash flow, income and sales tax benefits, and financial statement advantages. There are benefits to buying vs. leasing too, but the scales normally tip toward leasing, even for long-term vehicle use. Here are a few tips to aid your decision. In the end, fleet management relies on the fact that business owners, CFO’s, controllers, and others have a high value on their time…the concept of opportunity cost.
Three choices exist for acquiring vehicles – cash, finance, or lease. Leasing allows fleet owners to pay for the portion of the vehicles they use. This naturally reduces payment compared to financing a vehicle. Three choices exist at lease-end: buy, extend, or return. The key to preserving all three of those options is the proper structure of a fleet lease (another term for business lease). Business vehicles are typically used one hundred percent for business purposes, making lease payments and all vehicle expenses (maintenance, fuel, insurance) tax deductible. Fleet leases normally have no mileage charges or damage charges. Such leases are called open-end leases. Closed-end leases, by contrast, are typically consumer leases and include mileage and damage charges. Know that leasing is for all companies – those that can buy, those that can lease, those that can pay cash. Companies flush with capital lease to retain capital and take advantage of strategic opportunities, maximize income tax (and sales tax) benefits, and improve financial statements.
Lifecycle cost analysis tabulates the true cost of operating a vehicle and helps decide between vehicles based on their depreciation profile, maintenance needs, and fuel/insurance costs.
The five key components of a life cycle cost analysis are:
- Acquisition Cost
- Future Value
Whether buying or leasing, insurance is an expensive component of fleet operation. Determining which vehicles to use in a corporate fleet may include advice from a fleet management company using lifecycle cost management and industry knowledge. Fleet choices include traditional gas, diesel, hybrid, and electric vehicles, which may have tax benefits and lower insurance premiums. Be sure to consider requirements set in obtaining insurance quotes. Pick out several models of interest and obtain fleet insurance quotes.
Some people enjoy the process of dealing with a car dealer every few years to acquire a vehicle. Few enjoy it five, then, twenty times a year when it involves a fleet and fleet services. There are three ways to acquire a vehicle in terms of price – retail, fleet, and large fleet rebates. The vehicles can also be purchased out-of-stock or factory ordered. Lower prices are achieved ordering factory ordered vehicles. A fleet of 15 vehicles qualifies for fleet rebate status with most OEM’s. Much larger fleets qualify for large fleet rebates. Fleet rebates are based on the end user, not the fleet management company. Don’t be fooled by firms saying they are the largest, best, or cheapest. In the end, make sure your fleet is getting the best rebates possible. This is the work of a fleet management company but if your job involves acquiring fleet vehicles, maximizing rebates and minimizing vehicle cost is core to your success.
You have a corporate image to uphold. Leasing allows you to have newer and more reliable company vehicles, make positive first impressions, and build a brand for the ages. This is not to suggest that leasing mandates new vehicles every two or three years. The art of fleet leasing and fleet management focus on the ideal timing for cycling commercial vehicles which can often be 5+ years.
Apart from obvious necessities, think about your drivers. Do they carry heavy material, parts, paperwork, or need ladders and equipment? The answers can help calculate payload (weight of goods, people, and fuel) and will define which vehicles are acceptable for use in your fleet. Matching needs with vehicle capabilities are critical. The same is true of vehicle options and equipment. Overloading a vehicle is not only potentially hazardous but results in premature failure of vehicle components.
30,000 miles a year many not seem like a lot to a fleet manager, but to a driver, that equates to 500 hours of their life each year in a vehicle. It should feel safe, capable, and have the options that allow the driver to operate in all conditions with confidence.
Details Details Details
Details are what make a great fleet management experience notable over an “okay” experience or worse. Details include the fleet management company team, advice, response time, analysis, new ideas, and implementation/execution. Check references and ask the hard questions first. The people on the team will make or break the fleet management experience.
Companies often require special modifications to meet service obligations. It’s best to go with lessors who’ll meet your needs without overcharging or forcing you into a contract. Fleet management relationships often evolve from an initial set of core needs to more sophisticated needs and services over time. The initial need may be advice and new vehicles, but soon after that, you may find that maintenance management, fuel, and telematics are important to manage.
What is fleet management? What is corporate vehicle leasing? What fleet solutions suit my organization? When it’s time for leasing, remember the financial responsibilities, benefits, and insurance requirements. Always shoot for the largest incentives while trying to customize your lease agreement to suit your firm’s needs. Leasing can be rewarding; just perform simple due diligence before setting your sights on one partner. Interview hard, so you only have to interview once! Make sure they are capable of your needs today, your future needs, and that the team will be there to deliver long-term. Focus on what you and your team do best and leave the vehicles to the fleet management companies.