Lease Or Buy? Five Questions To Consider

Companies need to know the true cost of fleet ownership before deciding.


Leasing companies, due to their sheer size, can negotiate the best pricing on equipment, maintenance items and expendables and pass those economies of scale onto their lease customers. Without that benefit, a smaller fleet with fewer than 50 units can expect to pay a sizeable premium on parts, tires, outside repairs and other truck-related expenses due to economies of scale.

Leasing companies, which have the capability of customizing quality trucks with specialized equipment to meet their clients' individual needs, can help you realize operational efficiencies such as better fuel economy, greater productivity and improved driver satisfaction.

Do you know what the true cost of ownership represents?

More specifically, do you know what your equipment's maintenance costs are?

Most organizations have a good handle on their financing costs. Typically, equipment financing is a fixed, known quantity. Unfortunately, the cost of maintenance is often not well-known or understood. But it should be.

Large fleets that run a tight accounting ship can tell you down to the penny, on a unit-by-unit basis, how much they spend on labor, parts, tires and outside repairs for their trucks. They can also tell you how those expenses are trending compared to their annual budgets.

Think of this as a profit-and-loss statement on each truck. Those companies can also track trends that indicate poorly running units and units that experience repeat repairs. These types of trends influence future component purchasing and maintenance practices. By having a handle on these trends, organizations can fine-tune their trade cycles and optimize their operating costs.

For small fleets, many lump all of their transportation expenses into general accounts. So, they have no real way of identifying costs on a per-unit basis.

You can purchase off-the-shelf software to help calculate true maintenance costs. But the software usually can't take into account your parts and labor pricing. The time it takes to process repair orders, payables and receivables, plus track warranty work, licensing, permitting and compliance with U.S. Department of Transportation regulations, can all add up to major costs for companies. Those expenses may or may not be captured at the fleet or unit level.

These items, traditionally thought of as overhead items, contribute to the overall cost of ownership and must be considered when deciding whether to lease or buy trucks.

What are the perceived benefits of ownership and leasing?

The benefits of leasing trucks are financial and operational. Financially, a company can preserve capital for other parts of its business that generate a higher return. Operationally, it allows a company to focus on core functions of its business.

Truck ownership has been perceived to provide better control, which may or may not be the case. In many situations, there is inherent risk associated with owning trucks. Some of these risks include the value of the equipment at trade-in time, unpredictable maintenance costs over the equipment life, obsolete or stranded assets due to improper replacement cycle and increased costs caused by hiring, training and tooling technicians to keep up with ever-changing truck technology. Those risks make it difficult, if not impossible, for a company to maintain a stable cash flow. Equipment failures, even when they're covered under warranty, can create delivery delays and adversely affect your company's income.

Often, leasing can provide considerable flexibility to meet short-term and long-term equipment needs by custom tailoring a lease and maintenance package that matches the truck's useful life.

Leasing results in a more stable cash flow as fleets make one monthly fixed payment for their trucks and their maintenance.

A leasing company can, in many cases, offer a lower monthly payment than what you would pay to finance a truck since it uses the truck's residual value in determining the lease payment.

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