When acquiring light duty commercial vehicles, it ultimately comes down to two options: buying or leasing. This decision hasn't always been a clear cut one. But with the increasing flexibility and customization plans being offered by leasing companies today, buying vehicles isn't a common recommendation among fleet consultants. Why, because of two main reasons, they say: more cost upfront and more commitment.
COST OF OWNING
The cost of buying vehicles adds up to be more than just the initial purchase amount, especially when maintenance responsibilities are being handled in-house. The additional costs of owning vehicles in a fleet include:
• Unpredictable and fluctuating repair costs over equipment life.
• Downtime associated with maintenance and upkeep.
• Aging fleets leading to poor brand image and low employee morale.
Fleets that own are more likely to keep their vehicles until the absolute end of life, while leased fleets are typically traded in for newer models generally within three to seven years – depending on lease contract.
As the equipment ages and racks up on-road time, maintenance time and cost inevitably increase, which ultimately leads to more downtime. Unlike some lease options, where a replacement vehicle can be provided while another is getting serviced, when an owned vehicle is off the road, it interrupts business operations. That means money is being put into a depreciating asset while less money is coming in.
"Fleets really need uptime and the use of a vehicle … and not all of the headaches that come along with owning a depreciating asset," says Jim Lager, senior vice president of sales, Penske Truck Leasing (www.pensketruckleasing.com), a leading global transportation services provider. "Customers are finding more and more that they need an experienced partner to handle their transportation demands so they can focus on running their business.”
MAINTENANCE
If maintenance responsibilities aren't being all, or partially, outsourced, that adds another layer of costs associated with owning: hiring, training and tooling technicians to keep up with new technology.
It's no trade secret that there is a shortage of technicians as is, and that certainly poses a challenge. But with things like the safety and compliance standards constantly reshaping and redefining maintenance trends, it's not just about finding new hires. Of course, technicians need to have the proper training. But beyond that they need the proper tools, continuing education and current information readily available.
Aging fleets especially pose a problem with maintenance because technology is always moving forward. Some vehicles in an owned fleet can be anywhere from 15 to 20 years old or more, and extending product life that long could mean parts and components get scarce, or even sometimes obsolete. The cost of those parts and components isn't guaranteed to stay the same.
With leasing, fleets have the option to pass on all or some maintenance responsibly, while knowing what their monthly costs will be upfront.
"When you look at the point in time in a vehicle’s life where the maintenance cost, and a little bit on the fuel side too, starts costing more than the depreciation of the vehicle on your books it generally becomes more costly to keep the vehicle longer," says fleet consultant Janis Christensen of fleet management firm Mercury Associates (www.mercury-assoc.com). "The old way of buying vehicles and just letting them run into the ground inevitably becomes more costly than replacing them at that point in life."
Furthermore, if aging fleets on the road aren't maintained properly, it's not good for brand image, employee morale or safety, adds John Schwegman, U.S. director of commercial product, General Motors Fleet (www.gmfleetcom), a part of General Motors that focuses on business cars, trucks, vans and commercial vehicles. When a vehicle is showing signs of age, it starts reflecting on the company.
"Fielding a fleet of newer vehicles projects an image of success, which helps build brands," he says. "Newer vehicles also help bolster employee satisfaction, especially when they have technologies such as 4G LTE that help them do their job better, or safety features that make them feel valued and well-cared for."
Other newer features include crash avoidance, rear and side view camera and connectivity options.
Schwegman notes that the "pace of innovation is very rapid" in those areas and that just three years ago they were relatively rare. Now, nearly every new Chevrolet, Buick and GMC model offers them.
Unless it's a personal preference, or a fleet must work in the constraints of an annual budget – think government fleets, owning isn't as "easy" as leasing.
LEASING OPTION
Because vehicles are deprecating assets and growing in technological complexity fleet management consultant Christensen of Mercury Associates generally advises that fleets lease or borrow vehicles. Specifically, she recommends a pay-as-you-go solution.
Ryder Leasing, among other companies, offers this pay-as-you-go option, along with several different fleet options. Its new ChoiceLease program caters to different fleets who want different levels of maintenance control.
"We came to find that there is a strong interest in the marketplace for having options and greater control, which is how ChoiceLease came to fruition," said John Gleason, executive vice president and chief sales officer, Ryder (www.ryder.com). "This unique offering is providing customers the opportunity to do business with Ryder on their terms."
Offering more or less maintenance control depending on the customers’ needs can be a major pull for fleets who may see buying as the only way to maintain control of maintenance, he notes. The Ryder ChoiceLease’s maintenance options – Full Service, Preventive and On-Demand – enables customers to decide the terms of their lease alongside the level of maintenance they prefer, from total bumper-to-bumper coverage to pay-as-you-go maintenance, accessed only when and where they need it.
Most commercial operations opt for a traditional operating lease, Christensen says. This type of lease allows use of the asset for a portion of its life, usually between five to seven years, and before turning it back in before it's fully depleted itself.
WEIGH THE BENEFITS
With different operations and applications, it's easy for a single pro-con leasing list to get a little messy. A downside for one company could be an upside for another, depending on what a company wants to get out of their fleet.
For example, leasing allows a fleet to elect to pass on maintenance duties to a leasing company. That means also passing on the burden of training and recruiting technicians to keep up with the increasing complexity of technology. It can be an out of sight, out of mind mentality.
That works for some, but electing to contract maintenance duties could also mean not being able to make maintenance decisions, like when, where and who is going to be working on their fleet.
But, it also gives fleets access to maintenance facilities across the country, which isn't a luxury you can have with an owned fleet most of the time. Leasing can also take care of the titles and registration of fleets that are based across the country.
Leasing companies are increasing flexibility in leasing programs and offering more customization options in order to appeal to both those who want more control, or less control, and, it's working, say some fleet consultants.
In general, leasing light duty vehicles for fleets means a lower monthly cost, the option to customize a program and benefits from a new and constantly upkept fleet.
