How to Make the Smooth Transition From Purchasing to Leasing
Your company currently purchases vehicles and you want to save time and money through leasing. Many companies have made the switch to leasing and have worked with a fleet management company for their leasing needs and for comprehensive fleet management. Partnering with a fleet management firm can help you lower acquisition costs, free up cash, right-sized your fleet, implement technology solutions to manage vehicle maintenance, and improve vehicle selection.
This solution can save you time and money that could be directed towards other efforts that can grow and improve your company. Before you dive right into making the switch, what questions do you need to ask to make an informed decision?
- How do I choose a leasing provider?
- What type of lease will work best for me?
- How does the maintenance program work? Is it required?
- Can you include upfitting equipment in my lease?
- How does the fleet management company handle disposition of the vehicles when leases are up?
How to Choose a Lease Provider?
With any business partnership, fit is critically important. Considerations include fleet size, service offerings, communication, team dedicated to your account, service levels, and lease structure.
Fleet management companies serve different segments of fleets typically measured by size of fleet. If you have a fleet of 10, you don’t want to partner with a firm that targets fleets greater than 1,000. What type of services are you looking for now and in the future? Leasing is one component of fleet management. Full service fleet providers can support you in many areas of managing your fleet including:
- Fleet strategy and best practices
- Independent fleet analysis and advice
- Used vehicle fleet leasing
- Nationwide title and registration
- Managed maintenance and roadside assistance program
- Fuel management program
- GPS/telematics solutions
- Nationwide driver safety programs
- Nationwide upfitting
Fleet management companies have different approaches and philosophies around service. Ask probing questions to understand what approach works best for your style and culture. Who will be your main point of contact and what is their availability? Can you get adhoc consulting and do you get the feeling that they have your best interests in mind? Are they a partner or a vendor? Will you be working with an experienced fleet expert or are there layers of support? Is the team tenured or comprised of recent college grads?
Lease structure is also an important factor. Does the provider offer flexible lease structures to meet the changing needs of your business? Speaking of lease structure…
What Type of Lease Will Work Best for Me?
There are two types of leases: open-end leases and closed-end leases. Open-end leases are true fleet leases. They do not have mileage or damage charges and are naturally flexible. The lessee is responsible for the vehicle’s value at the end of the lease. This residual value is estimated at the beginning of the lease and takes anticipated mileage and wear and tear over the term of the lease into account when setting the residual value. If the value at the end of the lease is higher than the estimate, the equity built up is paid out to the lessee or used as a trade-in value on a subsequent lease. If the value is less than the estimate, the lessee is billed for the difference. This typically occurs in cases of unexpectedly high mileage or damage.
A closed-end lease means the lessee will pay a fixed guaranteed cost over a prespecified term. There is a mileage limit which the lessee is responsible for. Excess mileage charges and excess wear and tear on the vehicles are billed and can be significant particularly in fleet use.
Lease terms also need to be decided. You should choose a lease term that matches your vehicle usage and cash flow needs. Leases can be extended but terminating a closed-end lease early is very costly.
How Does the Maintenance Program Work? Is it required?
Maintenance is a critical aspect of working with a fleet management company. If you choose to go with a managed maintenance plan, you should find out how much you can save compared to your current operation. Savings comes in service cost savings, administrative savings and the benefits of built-in roadside assistance and towing. Understand if the managed maintenance program will make you more efficient in the administration of your fleet. The ease with how service is authorized and tracked are two more important details to be aware of. If your driver has a question, you need to have a number for them to call so they can get assistance.
Roadside assistance is a valuable service that may make sense for your company, but not all maintenance programs include it. The same is true of rental cars, driver safety courses, and windshield replacement.
Can You Include Upfitting and Equipment in My Lease?
Your fleet vehicles may need upfitting equipment installed with specialized equipment like ladder racks, bins, wraps, emergency lights, etc. You should find out if your fleet management company can coordinate the upfitting with the supplier AND factor it into your monthly lease payment.
How Does the Fleet Management Company Handle Disposition of the Vehicles When Leases are Up?
This can be the least appreciated service offered but the most important in terms of dollars and cents.
If you have an open-end lease, you can build equity in the vehicle. At lease end, you want to maximize those dollars. You don’t want to wait six months for the vehicle to be sold to get your money as vehicles depreciate every day. Your fleet management firm is responsible for converting your vehicle into cash. You need to know how hard your fleet management company is working for you and if they have a history of delivering on their promises. If they can’t sell the vehicle quickly after your lease is up, you might end up having to foot the bill for lease payments until it’s sold as well as ride the value downhill.
If you decide to lease, you should follow all the guidelines listed in this article in order to maximize your profits and minimize your problems. Done properly, a great fleet management program can save you time and money in the long run.