TCA Spring 2022 Utility Cooperative Forum: Should our company “own or lease” our fleet equipment?

Originally published in The Cooperative Accountant, Spring 2022 Issue

The decision whether to “own or lease” company fleet equipment has been seen by many historically as a financial decision. But there may be other good reasons to consider one option over the other. Some of the non-financial reasons to choose leasing may include the constant influx of new equipment technologies and an ever-growing shortage of qualified automotive technicians. In the past, leasing had been favored by sizable fleets that run standard equipment on shorter trade cycles. But, increasingly, more companies of all sizes are looking at all options which could include outright ownership, finance leasing, full-service leasing, or some combination of these options. Full-service leasing includes the use of the vehicle for a set number of years, repairs and maintenance not caused by accident or abuse, and potential other services bundled into the monthly lease payments. Financing leases are generally done through a financial institution, and the lessee maintains control over how the equipment is managed and maintained. A purchase can be either with cash or through financing, and all responsibility and expenses related to the vehicle remain with the purchaser. A fleet could vary depending on the needs of your company and might encompass a range of vehicles and machinery, including commercial motor vehicles, mobile construction machinery, trucks, trailers, vans, and specialty-use vehicles.

Leasing could offer the opportunity to operate newer equipment more frequently. This could lead to benefits such as reduced emissions, safety improvements, and better driver retention and recruitment since drivers prefer to operate newer equipment. By contrast, when fleet assets are purchased, the company has full control and ownership over what happens throughout their entire service life. If leasing, the leasing company may limit use during the lease period so they can be re-sold or re-leased at the end of the leasing period. In contrast, if owned, vehicles can be used until they can’t be used anymore. The decision depends on the organization, how much fleet equipment is needed, and what resources the organization can devote to owning and maintaining them. Some organizations see fleet management as a core competency, can do it well, and keep owning their fleet as a result.

An unbiased analysis should be prepared to compare owning versus leasing as it relates to your organization’s circumstances in order to decide on the options that are right for your company. Factors such as the type of operation, fleet requirements, organizational preferences, miles driven and driving conditions, and financial considerations can influence the decision. There are pros and cons to each option. The analysis should be completed periodically, depending on when it makes sense to update the last analysis. It is important to consider the timing and goals of any analysis, for instance “why now”, what has or hasn’t changed since the last analysis, and who is requesting the analysis. The decision to “own or lease” is not the sole responsibility of the fleet manager, but instead is one that is completed in conjunction with finance and operations personnel. The fleet manager’s role is to serve as the subject matter expert regarding fleet management and fleet operating activities. The financial person’s role is to build the financial model. The role of the operations staff is to provide guidance and direction in evaluating the analysis results, directing the decision to the one that is right for the organization. Final decisions are typically made at senior levels of management. If a fleet manager learns that the option that is determined to be the most cost effective is not the one currently in use, and the company decides to make a change, the impacts could be dramatic to the fleet management area. This could result in requiring new processes, new suppliers, and a different way to manage fleet activities. For instance, budgeting, warranty tracking, and administrative duties (i.e. tag renewals, insurance renewals, etc.) would change. A fleet manager’s participation in the decision making process is critical because that person will have to live with the consequences resulting from the decision.

To read the full article, NSAC Connect