Should you lease your fleet vehicles or buy them? It's the eternal question, and at some point, almost every fleet manager has thought about this. The decision never comes easy, and you should look at a number of factors from budget to size to goals. We can't necessarily make the decision for you, and you will probably understand the intimate details of your fleet a little better than us, but we can give you tools to help guide the decision.
Leasing: The Benefits
Leasing looks a lot like renting vehicles, but instead of only renting for a couple days, leasing will last for up to a year and sometimes longer. Technically speaking, leasing pays for the use of the vehicles instead of the asset. You have two different kinds of leases.
- Open-end leases: This lease begins with a minimum term of around one year. After that, you have the option to rent on a month-to-month basis. Toward the end of the agreement, you can sell the fleet vehicles and generate some extra profit. The sale takes place as a predetermined value, and the lessor could have to pay for the difference. If the sale is less than the asset value, you will have to make up the difference to the lessor.
- Closed-end leases: A closed-end lease will have a fixed term where you make monthly payments. However, you cannot put wear and tear on the vehicle or go over a predetermined limit on the mileage. If you do, you have to pay a penalty. With this one, you can't sell the vehicle at the end of the leasing term. Typically the closed-end lease will cost less upfront while the open-end lease will cost more.
Preserve Your Capital
Leases have the wonderful benefit of keeping your monthly payments at a lower cost. The company also doesn't have to dish out a hefty sum of cash to buy a new fleet vehicle.
When you're a startup company, that makes all the difference because you can put your money into advertising, products and more hard-pressing demands. You can also get newer and more advanced vehicles without having to worry that the price will spin out of control.
Saving on the Cost of Fuel and Maintenance
A leased vehicle lets you visit the repair shop and pay less for fuel. It sounds fishy, but because leased vehicles are usually newer, they will have fewer maintenance concerns, and their fuel economy will add up to more savings. Because of this, your vehicle will have more uptime and lower maintenance costs.
In fact, St Lawrence County dropped their maintenance costs to $2,000 per year. To put that into perspective, they were paying $30,000 every year before. Meanwhile, they went from paying $50,000 a year on fuel to dropping it 50 percent at $25,000 every year. Sometimes you will also have an option for different maintenance levels, which could drop your total cost of ownership anywhere from 10 percent to 20 percent.
How often have you had to replace a fleet vehicle? The average term with most leases will be around three years. Imagine having to do that with buying new fleet vehicles. Leasing gives you predictable monthly payments, and you have less liability and cost.
You can switch from one vehicle to the next if the need arises. Especially when you want your vehicles to represent the best image of your company, a newer vehicle gives you a better brand image, which will help you to make sales.
If you'd like to learn more about whether you should buy or lease your fleet, contact us today. We'd love the opportunity to work with you and your business.