Business vehicles can be a huge expense for SMEs in Australia. Purchasing or leasing a vehicle is a big decision to make, and consequently will affect your bottom line. If you’re strapped for resources and cash, it’s a good idea to look at all the pros and cons before purchasing or leasing a vehicle, rather than regretting the decision later.
Leasing
A fleet leasing arrangement means you outsource most things around vehicle management. A fleet leasing/management company takes care of a whole host of vehicle-related tasks including buying, selling, registering and provision of fuel cards. All you need to do is choose your car and pay your monthly invoices.
Fleet leasing is becoming an increasingly appealing option for many organisations who are enjoying the reduced risk and simplicity a leasing arrangement offers. There’s been a definite shift in the SME market, with organisations in this sector becoming more and more comfortable with the notion of leasing. Custom Fleet’s business servicing the SME market grew by 47 per cent between 2006 and 2007.
Fleet leasing can offer a number of benefits for companies, regardless of their size. These include:
Better capital allocation
A leasing agreement can mean an organisation can invest in income-producing assets, rather than tie their funds up in vehicles which depreciate quickly over time. By focusing funds in areas directly related to profit making, organisations can ensure business growth is not compromised.
Reduced vehicle rentals and other costs
Fleet leasing companies may have significantly more purchasing power than an organisation outside the industry. The lower prices a leasing company can secure on cars and FBT are then passed on to customers who end up paying less overall.
Less risk
At the end of a leasing period, cars are simply returned to the fleet company (unless an employee wishes to purchase the car). Not only can this save companies the hassle of selling the vehicle, it may protect them from residual risk as they aren’t trying to sell a used car which has depreciated in value over time.
Less of your time
Fewer companies have dedicated fleet managers these days and, as a result, many businesses simply don’t have the resources to source, purchase and manage car fleets. All those things take a lot longer than people think and, without a dedicated person to manage the whole process, it ends up being someone’s job on top of their existing workload. By outsourcing all facets of running a vehicle fleet, companies can free up their time to focus on more important tasks – like running their business.
Simplified paperwork
Under a leasing arrangement, most aspects of running and managing your fleet fall under one umbrella. You receive one invoice each month which covers all associated costs, reducing the administration time spent managing fleet-related issues and expenses. Because companies are paying the same amount each month, budgeting is far easier, helping businesses better manage their cash flow.
Better for the environment
Car emissions are emerging as one area which can effectively be addressed in order for organisations to reduce their business’s impact on the environment. Companies like Custom Fleet have launched fleet carbon management programs to help their customers reduce car emissions. Custom Fleet’s initiative, Drive Lightly, measures a company’s carbon emissions, looks at ways to reduce those emissions, then implements an offset program for the remaining carbon based on actual fuel consumption. The program gives organisations access to driver training to educate people on techniques to improve fuel efficiency and encourage driver safety. A vehicle selector tool is also available to help organisations choose a vehicle based on elements such as fuel consumption, environmental impact and whole of cost life.
On the downside, leasing agreements mean if companies do want to purchase the vehicle once the leasing period has ended, the cost won’t be determined until that time. This makes financial planning more difficult.
Fleet leasing suits most organisations, but particularly those whose vehicle needs vary. For example, a company with short-term construction contracts only needs vehicles for a finite period of time, making leasing a far simpler choice. Leasing also suits many non-profit organisations who, already pushed for funds, simply don’t have the resources to buy, sell and manage vehicles. It gives these organisations a better handle on their funds – critical in that sector – and because they know in advance what their outgoings are, they can better manage their finances.
Purchasing
Within some companies and industries there is still a culture of “buying is best”. Although not always the most time and cost effective option, sometimes purchasing vehicles is a better choice for certain organisations. Purchasing your own fleet simply means you source, buy and manage your own vehicles. Obviously there are no fees from a leasing/management company, but every aspect of vehicle management becomes your responsibility.
The advantages of purchasing include:
Vehicle ownership
Purchasing vehicles means you or your company can call that asset your own. Once you no longer need that car, you can do with it what you like, whether that’s selling it, trading it in or giving it to a family member.
Drive with impunity
If you own your vehicle, it’s your choice whether you drive it carefully or really push it to its limits. Certainly, in some industries where vehicles are put through tough conditions, it may pay to purchase in the first place and write the car off as a loss once it has reached its life end.
Flexibility
When purchasing rather than leasing a vehicle, companies must take responsibility for selling the car. This can mean significant time and costs for an organisation as they try to secure the best return and manage the whole process. Fleet management companies take this hassle away.
There may, of course, be shortcomings associated with purchasing, some of which include:
Depreciation
Cars are well known as one of the worst depreciating assets you can purchase. Investing in such loss making assets can have profit implications for your business because you are forced to divert funds to purchase cars on a fairly regular basis. When vehicles become outdated, organisations must spend more money to upgrade them, once again using valuable funds to maintain the fleet.
Disposal costs and hassle
When a vehicle reaches the end of its life or is no longer needed, companies must take responsibility for selling the car. This can mean significant time and costs for an organisation as they try to secure the best return and manage the whole process.
Unknown costs
Owning your own vehicle fleet makes financial planning harder. At any time, there could be a surprise bill – whether that’s repairs, maintenance or insurance. Not only do you need to pay for those bills, you also need to manage everything around actually getting the maintenance done. Worse still is accident management – a whole lot of paperwork emerges following any sort of vehicle damage and it can be a time consuming exercise to manage it.
A fleet management company removes all of that, taking care of the claims processing, organising repairs and liaising with the insurer.
Keith Cormican is managing director of Custom Fleet Australia (www.customfleet.com.au), one of the largest providers of fleet management and leasing solutions to the large corporate, government and SME sectors.
