A Better Alternative to Full-Service Van/Truck Leases
When you lease trucks for your fleet you may be offered what seems like a very attractive program that covers your lease payment as well as your maintenance for one price. This option is called a full-service lease. It is a conventional lease plus a maintenance agreement blended together and inseparable.
When you lease trucks for your fleet you may be offered what seems like a very attractive program that covers your lease payment as well as your maintenance for one price. This option is called a full-service lease. It is a conventional lease plus a maintenance agreement blended together and inseparable. Typically they include a lease and fleet maintenance fee and variable mileage fee. Some include a replacement vehicle in the event the truck breaks down. The consistent monthly cost is attractive to many businesses. While the predictable monthly cost may help you sleep at night, these lease programs are expensive and you will likely overpay considerably. There are alternatives for fleets. Small fleets with one to five trucks may like the consistent cost, but larger fleets should self-insure and bifurcate their leases and their maintenance.
What is a Full-Service Lease?
A full-service lease is typically a closed-end operating lease that includes a maintenance agreement and a replacement vehicle in the event a truck breaks down. Full-service leases are generally 36 to 84 months and the lessor takes responsibility for any vehicle repairs and maintenance not caused by driver negligence or accidents. Typically, a full-service lease requires the lessee to repair the vehicles at the lessor’s repair facility. At the end of the lease, the lessee returns the truck to the lessor and has the option to begin a new full-service lease with a new vehicle. The closed-end lease is very expensive to terminate early as the lessee is billed for all future unmade payments. In addition, full-service leases do not transfer any lease-end equity to the lessee.
The main advantage of a full-service lease is the consistent monthly costs. Companies avoid large swings in expenses and cash flow due to large repair or maintenance bills. Companies effectively pay for the repairs and maintenance monthly as apart of their total bill plus a significant actuarial premium like insurance. It is like an insurance policy for repairs and maintenance, but at what cost?
Full-Service Leases – Do the Costs Outweigh the Benefits?
While the features of full-service leases might sound appealing, they are very expensive. The “full-service” portion of this program (maintenance) adds an extra $500 to $1,200 per month per vehicle for straight trucks. It can add $80 to $150 per month for cargo vans, pickups, and sedans which typically have very low maintenance costs. That figure may sound outrageous. When compared with self-insuring a vehicle, full-service leases cost 40-75% more than the actual expected costs.
Therefore, the 40-75% added on top of the actual expected costs in a full-service lease is the “insurance premium” paid to have a peace of mind. Vehicles are relatively inexpensive to fix. Paying 50% more across the board to maintain your fleet of 10, 100, or 1000 is illogical. Self-insure and save the money. Be conservative and save it in a contingency account. Either way – save it!
The Optimal Alternative to Full-Service Leasing
An alternative to full-service leases is a managed maintenance program. Under a managed maintenance program coupled with open-end leases, companies pay for the actual cost of the repairs plus a small fixed management fee per month, typically $10 – $25 per month. Companies are not required to take the vehicles to the lessor’s repair facilities. Companies experience 30-40% cost savings under a managed maintenance program versus a non-managed program and even more compared to a full maintenance program.
Coupling managed maintenance with open-end leases achieves the following:
- Lower maintenance costs
- Lease flexibility with open-end leases
- Lease-end equity
What Is Included Under Managed Maintenance
The best strategy for vehicle repair is one that emphasizes prevention. Preventing problems before they appear can drastically reduce repair costs over time and significantly lengthen vehicle lifespan. Preventative maintenance manages factory warranties ensuring a company will never pay for components covered by a warranty.
Vehicle Maintenance Schedule
Customized Vehicle Maintenance Guides (VMGs) are prepared for every vehicle in the fleet. The vehicle maintenance schedule appears in graph format. It visually illustrates different vehicle components that require routine maintenance and how often these parts should be addressed. Among the items on this list are: oil, lubrication, and filter changes, checking and adjustment of brakes, transmission service, coolant service, tire rotation, tire pressure checks, fuel filter changes, and fluid level checks.
Established Vendor Network
Managed maintenance provides access to an established nationwide vendor network. With more than seventy thousand national account facilities and seven thousand independent repair facilities, service is never far away. A network rating system displays the top rated vendors and reviews of independent repair facilities in the network.
Customer Contact Center
Managed fleet maintenance also provides access to a toll-free, 24/7 customer service line. Receive immediate attention from an on-staff, ASE certified mechanic who can offer counsel regarding the best available repair shops near you.
The repair process is straightforward. The driver experiencing a problem either stops at a known repair facility or contacts the customer care center and a certified technician captures detailed information about the vehicle and locates a nearby repair facility. Once in the shop, network specialists are contacted to determine if the repair is necessary. The drivers are never involved in that decision, eliminating the stress of making those decisions and ensuring consistent policies across the company. The network specialist also negotiates the repair cost on behalf of the client.
Managed maintenance programs include detailed reporting. No more manilla folders and manual tracking on spreadsheets. Options for reporting includes online, monthly, quarterly, and annual. It also features line item detail, which allows for a drill down from summary reports.
Choose to Self Insure and Save
For companies seeking to maintain their vehicle fleets, managed maintenance can be a cost-effective and time-saving option. Offering a multitude of services and benefits, such as secure vendor networking, detailed reporting, certified technicians, timely repair processes, preventative maintenance, and a vehicle maintenance schedule, managed fleet maintenance can work for fleets of 5 or 500.
If you own a company or a manage a fleet, contact Doering Fleet Management. Doering is a company that is primarily known for its expertise, service, and client satisfaction, and has built a strong, trustworthy reputation among businesses large and small.