Cashing Out by Getting Creative with Leasing

In fleet and in life, it can be easy to fall into comfortable habits. You invest time and effort to find something that works for you, then quickly move on the next task at hand. But time changes everything, and those reliable standards you set for your business in the past could be taking value away from your vehicles today.

If you are operating under the assumption that your fleet’s lease structure is simply a necessity, you may be missing out on opportunities for financial growth.

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Is it Time for a Leasing Makeover?

A fleet in the car-sharing space wanted to give their leasing approach a total makeover. They had been operating 1,250 hybrid sedans in a closed-end, 36-month lease since launching the business. With no  formal replacement strategy, their fleet team was ready to establish a cycling policy, reduce their monthly spend, and find additional profit in their vehicles. In order to accomplish this, they needed to look beyond traditional financing myths to understand how their unique business model could benefit from a fresh approach.

 

Stepping Out of the Comfort Zone

The first step was to review maintenance spend projections, total cost of ownership (TCO), and the estimated resale value for the sedans. After comparing these results against several lease term options and studying the remarketing potential across a wider geographical area, the opportunity was clear.

Based on the data, ARI’s business analysts proposed an open-ended 60 month lease. After 48 months the vehicles would be sold, empowering the fleet team to leverage the resale value and turn a profit after enjoying lower monthly payments. To keep the momentum going, 25 percent of vehicles would be cycled annually over the course of the next five years.

 

Seeing Results

These shifts in fleet strategy led to savings up front as well as down the line. By leasing over 60 months, the company realized $150 a month in TCO savings per vehicle, for a total savings of more than $2 million annually across the fleet. In addition, the lease payment for each vehicle dropped by $80 a month, for a total annual savings exceeding $1 million. With the new replacement strategy in place, they could anticipate lower costs in repair and time spent off the road.

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Get Creative

It’s easy to lose sight of the daily or monthly tasks in fleet, but if you stop to revisit your policies and the data in each of your investments, you can find some real, long-term savings. Check out our white paper on capital forecasting to help determine if your leasing strategy is working for your company.