Lease or Buy?
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.
Unsure how to capture true maintenance costs for your trucks? You can purchase off-the-shelf software to help calculate this data. But the software usually can’t take into account your parts and labor pricing. Plus, off-the-shelf software that tracks expenses doesn’t usually take into account the administrative costs associated with managing a fleet. 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 (DOT) 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.
Full-service lease providers can help you understand what your true maintenance costs are. Most have software they use for predicting and budgeting future maintenance costs.
4. What information or data do you need to make a lease/own comparison?
There are 12 basic items or costs – seven for ownership and five for leasing – you need to identify to perform an accurate comparison. They include the following:
- Initial cost of equipment, including the original purchase price, taxes, and additional equipment such as van bodies, tool boxes, headache racks, auxiliary power units, refrigeration units, etc.;
- If considering a bank loan, the interest rate, length of loan, and down payment;
- Length of asset life – how long will you utilize the equipment;
- Corporate tax rate – used to determine your company’s net write-off (after tax benefits of depreciation);
- Maintenance costs over the equipment’s life;
- Administrative costs for licensing and tracking DOT compliance, plus the general and administrative costs associated with managing your fleet’s maintenance; and
- Net present value calculation of the monthly payments, finance cost, and maintenance cost over the equipment’s lifetime.
- Lease rate;
- Variable cost (mileage rate) if a full-service lease;
- Length of lease;
- Net present value calculation of the lease payments over the equipment’s lifetime; and
- Residual responsibility – is it yours or does it belong to the lessor?
Again, it’s vital to tally all associated administrative expenses under ownership and lease before you make comparisons. Once you have gathered this data, you can perform a net present value calculation on the lease payment, the finance cost, and the maintenance cost throughout the equipment’s lifetime. It’s also important to look at the net after-tax cash flows under ownership and leasing. This will give you the true picture of how depreciation impacts ownership and leasing cash flows. The net present value calculation will estimate the future cash flows of ownership and leasing in today’s dollars so you can make an informed financial decision. Need help with the calculations? Most leasing companies have lease/buy tools that you can use to load with your fleet’s data to perform these calculations.
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