Truck ownership and fleet cost can be significant. Due to the lack of information on true fleet and leasing costs, business leaders are often forced to make their own decisions on whether to lease or buy, often with blindfolds on.
In an effort to help business leaders make better business decisions and make better use of limited resources, Ernst & Young conducted a total cost of ownership study. This study showed a number of surprises insights that may help many businesses save millions.
When should you lease vs. own the fleet?
Through conversations of different fleet managers of the study, one made reference to the rising maintenance costs as a result of the rising material costs. Another manager referenced that his company is leaning toward leasing due to cash flow issues. The study finds that both financing and maintenance costs are extremely dependant on fleet size economies of scale. This is due to larger fleets having greater negotiating power as well as having more potential with increased maintenance/shop utilization.
Based on the Ernst & Young study, Class 8 tractors and dry van trailers fleet sizes, some small-to-medium fleet size companies may benefit from outsourcing their fleet and maintenance to a large fleet leasing provider.
How do you reduce costs while meeting your fleet needs?
Companies are always looking for ways to cut costs and capital expenditures. In order really evaluate cost saving opportunities it’s important to understand your current costs and compare them to the costs of companies with a similar fleet size. Conducting a cost benchmarking study is step one in identifying whether companies are leaving money on the table or not. In order to know if you are making the right decision regarding whether to lease or buy, answer yourself these questions:
What is the total cost per mile for your trucking fleet?
Do you know how your fleet’s total cost per mile compares to similar sized fleets?
Are you able to obtain economies of scale from a fleet size of greater than 150?
Do you incorporate the cost of capital into your lease vs. buy decisions?
Is fleet management a core business competency?
Comparing the two
There are good and bad points about each option which you have to carefully consider before making a decision. If you decide to lease, you then have to decide whether you want a straight conventional lease or a lease purchase. Many leases include the cost of maintenance and repairs in the monthly payment. This will most likely increase the cost of your payments but on the other hand, if the truck needs an expensive repair or part, you won’t have to pay for it out of your own pocket. On the other hand, one drawback of leasing a truck is that you usually aren’t allowed to modify it. Most contracts state that the vehicle must be returned in the condition it was leased.
If you decide to buy a truck you will own it outright as soon as you make the last payment. If you own your business you can write off the depreciation on your tax return. The payments are generally higher than those of a lease and you pay for all the repairs and maintenance. However, if it’s paid off – it’s yours.
Truth be told, analyze which option is best for your business. Take an honest look at your finances and do some business projections, including worst case scenario, before you make a decision.