By Joseph Evangelist
Executive Vice President, Transervice
As originally appeared in FleetOwner Magazine’s IdeaXchange
Lease vs. buy is undoubtedly a question you have considered when in the midst of an asset acquisition. There is no right or wrong answer to the question. The decision depends on what is best for you and your organization at a given point in time. It’s a decision that will be undoubtedly influenced by your company’s financial situation and one that can change from one instance to the next, from one type of equipment to another.
More than 60% of fleet operations own their own trucks or material handling equipment. Owning, by paying cash or with financing, becomes strictly an accounting decision unless the assets are so specific in nature and/or utilization that it is important for you to have ownership.
If your equipment specifications are extremely unique and you intend to operate the vehicles for a much longer period (useful life) than the financial life, then ownership may be more beneficial.
The real discussion should center on ownership vs. full-service leasing. When you own the asset, you control the acquisition cost, the depreciation, the operation, the maintenance and ultimately, the disposal of the asset. In a full-service leasing environment, you do not control any of these things.
Corporate accountants look at the economic life of an asset. That’s the time period where the amortization of an asset becomes most useful to the company from an accounting point of view.
Fleet operators need to look at the “useful life” of an asset, in addition to the economic picture. Useful life is defined as how long an asset can be used if it is operated and maintained properly. Those two criteria are key and will help to make the decision to lease or buy easier.
So how do you properly maintain your equipment so that you can derive the most productivity from it during its useful life?
Many organizations provide their own in-house maintenance. So in addition to the purchase price, they are responsible for ongoing maintenance, repairs, parts, materials, recruiting and staffing costs. They also require a shop facility, on-site or nearby, shop tools and equipment and the labor to perform the necessary repairs effectively.
Given all the discussions surrounding the shortage of trained and certified technicians, the labor piece may have the most influence on your decision to handle your maintenance in-house or to outsource it.
If you own your equipment, you can elect to do your own maintenance and repairs or find a reputable maintenance and repair organization that you can count on to service it.
Full-service leasing allows you to acquire the equipment without the upfront costs and credit burdens of ownership, freeing up your cash for other expenses related to your core business. It’s a viable option for fleet operators that don’t have their own technicians or shops or those that want to outsource some of their maintenance and repair work.
The number of vehicles you operate could easily determine whether or not it makes sense to own and maintain your fleet or go with a full-service lease for your trucks and trailers.
With a small fleet, the cost of maintaining a shop, hiring technicians and acquiring diagnostic technologies could be cost prohibitive, in which case the decision to outsource is crystal clear. But otherwise, you need to base your leave vs. buy decision on the current state of your business enterprise and weigh the pros and cons accordingly.