Answer these five questions to determine whether your organization benefits most by purchasing vehicles, leasing vehicles, or a combination of both acquisition methods.
Each company operates under its own unique circumstances and what works for one Fortune 500 organization in the private sector may not work for a major power & gas utility fleet. Analyzing the pros and cons of purchasing or leasing vehicles is just one way to identify major cost savings in the vehicle acquisition process.
Question #1: What is the cash flow of your company?
Purchasing vehicles takes a huge hit out of the cash flow of your company. If there is an annual budget line item for purchasing vehicles it may not make a difference. However, if your fleet is deteriorating faster than you can afford new vehicles, leasing may be a more attractive option to acquire additional vehicles with the same amount of funds.
Question #2: Are there any current budgetary constraints?
When analyzing the benefits between purchasing or leasing vehicles, think about the monthly payments involved. Lower monthly payments achieved through leasing a vehicle may be more important than long-term cost savings when there are no monthly payments years later.
Question #3: Do any regulations impact your acquisition options?
If fleet dollars come from federal funding, this amount may be allocated to specific areas and may not be the same each year, which can derail a long term acquisition strategy. In addition, operating in a heavily regulated sector may limit the options available to secure vehicles.
Question #4: How will the fleet vehicles be used?
Analyzing the vehicles in use and their sole job function allows each one to be placed into a segment that may be best for purchasing or best for leasing. For example, if a heavily upfitted vehicle has a specialized task that is required of it, purchasing is likely to be the best option. This expensive vehicle can be kept in service longer to do that specific task over and over.
You can also analyze the driving pattern of employees to see if a simple change in the vehicle impacts the total cost of ownership. For example, downgrading 4×4 vehicles to 4×2 vehicles that are not impacted by winter weather can result in significant savings across a sales fleet.
Question #5: How does downtime impact your business?
Simply put: the older the vehicle, the higher the maintenance cost. The more vehicles that are purchased and ran into the ground, the more the budget will shift to unexpected and costly repairs. Or, would you prefer to lease your fleet to renew vehicles every three to four years and avoid unpredictable breakdowns? When drivers are stranded and unable to exceed customer expectations, this is an important question to consider.
Vehicle acquisition is not a one-size-fits-all approach and what works for one company will not work for another. A deep dive to answer these five questions will position your fleet from a significant cost to a strategic asset that delivers value.
Taking into consideration all of your unique circumstances as well as the prevailing financial climate will give you a holistic view into your own acquisition strategy. At ARI, we can assist you with this analysis to determine which acquisition method is best for your business. Once you know the “when’s, what’s, and why’s” around vehicle replacement the result is a fleet that is operating optimally and generating revenue for your company.
Developing a sound acquisition strategy doesn’t have to be challenging. Read our white paper to learn more.