Along with improving efficiency, fleet managers have the responsibility of reducing costs. There are several ways companies can cut fleet costs, such as focusing on preventative fleet maintenance and optimizing routing. But what many fleet managers neglect to consider is the money spent on vehicle procurement. Before you purchase another truck or van, carefully assess options of fleet leasing vs. buying.
Many companies lease fleet vehicles because it offers a low initial investment. However, the overall costs of fleet leasing may not be worth it in the long run. On the other hand, for fleets with a high vehicle turnover rate, leasing may be the best way to save money year after year. Check out the below considerations before you lease or buy fleet vehicles.
Considerations for Fleet Vehicle Leasing
There are many benefits to enterprise fleet leasing. The first, and the leading incentive behind leasing vs. buying fleet vehicles, is the low initial investment. However, there are several other benefits, as well as caveats, to leasing fleet vehicles. Let’s take a look at the pros and cons of each side.
First to consider is that you’re not paying for the vehicle itself; you’re paying for the use of it. Open-ended leases offer month-to-month leasing options. At the end of such an agreement, you return the vehicle or take advantage of an option-to-buy clause. A closed-end lease means fixed-terms with structured payments. You must carefully avoid wear and tear beyond the agreed-upon terms or face penalties.
Despite these drawbacks, there are several benefits to leasing fleet vehicles, not the least of which is the preservation of capital. Most fleet leases have lower monthly payments compared to buying fleet vehicles through financing. And once the lease agreement ends, you can exchange the fleet vehicle for a newer model with updated features for improved safety and economy. Newer vehicles require less maintenance, so you’ll rarely need to deal with major repairs.
Here are a few other benefits to leasing fleet vehicles:
Vehicle Replacement
As mentioned before, you often exchange a leased vehicle well before it begins to show its age, thereby reducing repair costs. The average term for a lease agreement is three years, so you aren’t locked to a fleet vehicle for its entire lifespan. By the time significant repairs become routine, you’ll have traded the vehicle in for a newer model.
Reduced Administration Costs
When you lease fleet vehicles, you don’t own them, so you don’t have to worry about the title, registration, or taxes. The leasing company will also take care of the tag, license renewal, and so forth, thus alleviating many of your administrative responsibilities.
Funding Management
Many fleet companies face budget restrictions, affecting their ability to replace vehicles. Leasing frees up this restriction. It also keeps you compliant with any prescribed vehicle replacement schedule. You’ll also have more predictable costs associated with maintenance and repairs, allowing you to stay on budget even in lean times.
Newest Safety Measures
Safety measures for vehicles are constantly improving. Current trends in the fleet vehicle market are shifting towards greater automation and better fuel economy. Even base models now have adaptable headlights, cruise control, and other safety features that we considered advanced just a few years ago. Newer vehicles may also include lane-keeping and parking assistance, hybrid electric fuel options, and integrated smart systems. More recent, safer vehicles offer a more comfortable ride for your employees and reduce your liability and insurance costs.
Now that we’ve covered leasing considerations let’s look at fleet vehicle purchasing.
Considerations for Buying Fleet Vehicles
There are also benefits to buying fleet vehicles. Perhaps the most significant advantage over fleet vehicle leasing is that there are no restrictions. You don’t have to worry about going over your allotted miles or paying hefty fines for any damage that might occur. Fleet vehicles experience a lot of wear and tear, and staying within leasing limits puts a lot of pressure on fleet managers. Let's look at the other pros and cons of buying your fleet vehicles.
Flexibility in Vehicle Disposal
If you experience issues with a vehicle or are unhappy with it, there’s no locked-in term agreement. You can choose to sell or repurpose a vehicle whenever it makes the most sense for your fleet. So if you decide to change your fleet from one vehicle type to another or find that you have too many of a specific kind, you can sell at any time.
Reduce Costs
When you lease a fleet vehicle, you make consistent monthly payments for its usage. You can never pay it off and enjoy the financial benefits of ownership. Leasing may cost less initially, but savvy fleet managers should also consider the long-term expense. Costs may include the possible penalties for mileage and wear, plus the likelihood of higher insurance costs because many leasing agreements require more comprehensive insurance coverage that may be unnecessary.
Tax Benefits
Purchased vehicles depreciate, but they also offer significant tax benefits, which aren’t seen by those who lease. Owners may be able to deduct the cost of the vehicle, its registration fees, fuel and maintenance expenses, as well as the depreciated value.
Reinvestment
Unlike small business fleet leasing, purchasing a vehicle builds equity over time. You can then reinvest that positive equity, which may benefit startup companies looking to build capital. If you decide to sell a vehicle, you can apply its profit towards acquiring new assets. Otherwise, you may choose to trade in the vehicle for a newer one. Trading in your owned vehicle will reduce the costs of the newer vehicle.
Other Key Considerations
Though there are many benefits to owning a vehicle, there is also more risk. Beyond this, there are other considerations you need to take into account. These may include:
- Rate of return vs. funds
- Monthly budget
- Maintenance expenses
- Ability to negotiate prices
- Depreciation
- Credit
- Long term costs
One good way to decide whether to purchase or lease fleet vehicles is to check your turnover rate. If your vehicle turnover rate is higher than it should be, leasing might be your best option.
Whether you buy or lease fleet vehicles, you can lower your insurance costs, liability, and more with Azuga. We provide leading telematics systems for fleet tracking and ELD compliance. Learn more about GPS fleet tracking, asset tracking, eLogs, and more, at Azuga.
