Lease versus purchase

 

At first glance, it might make sense that a company would want to own its fleet vehicles. Vehicle ownership can provide a company with a perceived sense of management control, operational visibility and certain tax benefits.

But the numbers ultimately don’t add up. Companies that own their fleet typically spend 10 percent more in total fleet costs than companies leasing their vehicles.

Perhaps that’s why 80 percent of Fortune 500 companies choose to lease, rather than own, their fleet vehicles.

There are a few major factors that companies should consider in their own decision to lease versus purchase.

 

ACQUISITION OF VEHICLES

As many companies are still in the process of emerging from the economic downturn, they are operating under tightened belts and with smaller capital expense budgets.

When it comes to acquiring new vehicles for an owned fleet, these dollars are typically provided via the company’s capital expense allocations. However, as capital expense budgets are ever-shifting, those dollars are often reprioritized due to budget cuts, making it difficult for fleet managers to cycle vehicles properly.

Vehicles that are leased, on the other hand, are accounted for in the company’s operational expense budget, which means that fleets won’t be left high and dry when inevitable capital expenditure budget cuts hit.

 

MAINTENANCE COSTS AND DOWNTIME

As the life of an owned fleet extends, the need for regular maintenance increases, resulting in unplanned expenses and downtime. Accordingly, ownership fleets will typically keep up to 30 percent more vehicles in their fleet than necessary. The benchmark is about 1 to 2 percent.

These extra vehicles are acquired, registered and maintained to deploy specifically in place of out-of-service and idle vehicles. This translates into wasted dollars.

Fleets will, of course, always need to keep some vehicles in reserve should the unexpected occur, but proper cycling could reduce the amount of idle assets in a fleet by 90 percent – from 30 percent to about 3 percent.

 

ANCILLARY PROGRAMS

Working with a leasing company can provide benefits beyond financing vehicles. For example, leasing companies can aid in the remarketing process by organizing specialty auctions that generate more resale dollars than usual.

In addition to providing an expertise at auctions, leasing companies are full-service consultancies that can help streamline the ordering, upfitting and delivery process.

Furthermore, these fleet management consultancies can be used as outsourced managers for programs, including maintenance, fuel spend and tracking, toll and violation management, safety monitoring, telematics and accident prevention. These services help companies spend more time focusing on their core business, and they can also help identify and realize unexpected cost savings.

If ensuring your fleet is running smoothly and keeping a close eye on your company’s bottom line is a priority, then it may be time to consider a lease structure rather than an owned one.

Steve Jastrow is the strategic consulting services manager for GE Capital Fleet Services (www.gefleet.com), a global fleet management company.

 

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