Many fleet owners looking to acquire more vehicles for their fleet ultimately face the same enduring question: should we buy, or should we lease?
Leasing fleet vehicles versus buying is never an easy or straightforward decision, especially when considering larger and more expensive vehicles such as semi trucks. At the end of the day, it depends on a number of factors, including, but not limited to, enterprise goals, fleet size, and budget.
This guide will walk you through the top three benefits and disadvantages of each, fleet vehicle leasing and buying, in order to help you make the best decision for your enterprise.
What is fleet leasing?
Fleet vehicle leasing is renting a commercial vehicle for an extended period, typically a year or more. Every payment affords you use of a vehicle rather than paying for ownership of the asset over time. This comes with both pros and cons, which we will outline below.
Advantages of fleet vehicle leasing
1. Cost
Arguably the most appealing aspect of leasing fleet vehicles is lower monthly payments and less money down. Saving money is intriguing no matter how many vehicles you intend to buy, whether it be one or a thousand. Every dollar saved per month can be invested in other areas of an enterprise, preserving capital for core business functions and other areas of greater need.
For anyone just beginning their fleet, such as a new owner operator starting a trucking company, leasing a semi truck versus buying can be particularly enticing given lower startup costs and overhead when margins are usually tighter.
2. Access to newer vehicles
Most leased vehicles are newer vehicles, if not straight from the factory floor. And who doesn’t like something new and shiny? The best part is, with every lease contract end you typically get another new vehicle, unless you decide to buy the vehicle, extend the lease, or go in another direction.
Access to newer fleet vehicles has many perks beyond just aesthetic appeal. Other benefits range from operational efficiencies to accessing the latest in vehicle technologies, including safety features.
3. Saving on maintenance and fuel
New vehicles should function in prime working order. There are exceptions, of course, but overall, they should be in optimal condition given limited engine hours and the fact that they have yet to experience the trials and tribulations of the road, contributing to wear and tear over time.
Healthier vehicles need less maintenance, repairs, and have better fuel efficiency – all of which can add up to significant cost savings. Better yet, depending upon the agreement, maintenance may even be covered by the lessor. This could be a large deciding factor when contemplating leasing a semi truck versus buying.
Disadvantages of fleet vehicle leasing
1. Lack of ownership
Although your upfront costs and monthly premiums may be lower when leasing, you are not gaining any ownership in the asset. Money saved upfront and on a recurring basis is at the expense of equity. So, although dollars saved may be advantageous in the short run, leasing is not as beneficial to the bottom line in the long run.
2. Higher insurance premiums
Given you are essentially borrowing the vehicle for a designated period of time, leasing companies want to protect their assets by requiring greater insurance coverage. The coverage required may be more than what you might opt for on your own. More coverage comes at a higher cost. So, although your leasing premium may be lower, it could be offset by higher fleet insurance costs.
3. Mileage limits
Commercial drivers rack up miles. The average Class 8 driver (those who drive trucks weighing over 33,000 pounds), for example, logs 60,000 miles a year. In order to protect their assets from considerable depreciation, lessors may set strict mileage limits with severe penalties for going over. Costly penalties could ultimately break any enterprise, especially when multiplied across a number of vehicles.
What is fleet vehicle buying?
Most of us are familiar with the process of buying. Just like any other asset or piece of equipment, the buyer and owner agree upon a price and the buyer either pays for the asset upfront or negotiates a payment schedule over time. Buying a commercial fleet vehicle also comes with both positives and negatives when compared with leasing fleet vehicles, outlined below.
Advantages of fleet buying
1. Ownership
Unlike leasing, a percentage of every payment is put towards ownership. With ownership, a fleet owner has the potential to recoup some costs down the road. Although its value will depreciate with time, an owned asset can always be sold should an enterprise need to downsize or come up with some fast cash.
Unlike leases, you are free to offload a vehicle at any time. This may be especially advantageous for larger, more costly commercial vehicles such as long-haul trucks– a compelling deciding factor when considering leasing a semi truck versus buying.
2. No limitations
With ownership comes unlimited use. There are no limitations to mileage or wear and tear. A fleet owner is free to allocate vehicle use freely, without worrying about potential penalties down the line.
3. Discounted pricing
Fleet managers looking to buy in bulk or consistently over time have the opportunity to establish a relationship with a commercial dealership, which may result in potentially lucrative discounts. Dealers are often open to price negotiations given the promise of future business down the line or if a fleet is looking to buy multiple vehicles at a time.
Disadvantages of fleet buying
1. Costs
Buying a commercial vehicle will cost more in the short run, with higher monthly payments and more money required down. Purchasing vehicles is also considered a major capital expense, affecting a company’s debt to income ratio. This may make an enterprise less attractive to future lenders or potential investors.
2. Maintenance and repairs
Commercial vehicles are typically subject to extreme wear in the severest of conditions, taking a heavy toll on vehicle condition. As a vehicle ages, it will begin to deteriorate, resulting in higher maintenance costs and repairs. Older vehicles also tend to be less fuel efficient, sending drivers to the gas pump more often. As an owner, you have to consider the cost of maintenance over the lifetime of a vehicle.
3. More administration
Buying a vehicle will require more paperwork. As an owner, you will be responsible for title and registration as well as any property taxes owed, and other administrative upkeep over time. It may seem like a minor inconvenience but multiplying the administrative costs across an entire fleet can be substantial.
Upgrading your fleet vehicles with fleet management solutions
Regardless of which method you choose to expand your fleet, whether it be leasing or buying, keeping your drivers and vehicles healthy and safe on the road is still of utmost priority. Even if you choose to buy or lease, arming your drivers with the latest in fleet safety and fleet tracking solutions can not only keep them safe, but optimize fleet performance for the better.
Contact us for more information or check out our recent guide on semi truck upgrades for improved fleet performance.