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Lease Versus Own?

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In any economy, smart contractors look for ways to ensure that their companies are running at peak efficiency. This has been even more evident in the past few years, as many contractors have placed an increased importance on controlling costs.

A good example is Falite Brothers, a 36-year-old, full-service, commercial and residential HVAC contractor serving the greater north shore area of Boston. The company switched to leasing its fleet of vehicles from Enterprise Fleet Management after figuring out it was costing them more to purchase and maintain a fleet of pre-owned vehicles that were in great shape.

“In addition to actual repair and maintenance expenses, which averaged $4,000 to $5,000 a vehicle over a four to five year period, we were losing money from loss of work due to frequent breakdowns,” said Ron Falite, president of Falite Brothers.

His brother and co-owner, Ray, agrees. “Now that we lease, we never have breakdowns because the vehicles are always new within three years and all repairs are covered in a full maintenance program. We are not a large company and we do not have a fleet manager, so relying on Enterprise’s technicians to schedule maintenance, negotiate the best prices for repairs, and manage warranties for one monthly  rate eliminates all the hassles and helps us avoid breakdowns,” said Ray Falite, vice president of operations. “Our fleet always looks new, our technicians and drivers are happy driving late model vehicles, and we don’t have the weekly stress of broken vehicles and angry customers.”

“Especially in today’s economy, we place a lot of value on knowing the fixed costs of our fleet month to month and year to year,” added Ron.

Controlling Fleet Costs

Like Falite Brothers, for many contractors, a fleet of vehicles represents one of their largest costs, requiring a considerable amount of money upfront and demanding a continuing amount of money, time, and resources. But with sound planning and effective fleet management, controlling the costs of a commercial fleet is something that all contractors can accomplish.

One way to control fleet costs is to look into the different ways to acquire vehicles. Leasing cars, vans, and light duty trucks under a tailored fleet management program offers an alternative to an outright or financed purchase.

Leasing Can Increase Cash Flow

One option is to fund vehicles through a full-service fleet management company. This can make it possible to establish a separate line of credit and avoid tapping lines of credit at a bank to fund rapidly depreciating assets such as a fleet of vehicles. Also, while traditional forms of financing or outright purchase generally require a complete payback of principal, most leases do not require a complete payback of the principal balance of the vehicle, which could have a positive impact on cash flow, depending on an individual company’s cost of capital.

Cycling Extends Cost Savings

While saving money through the acquisition of vehicles is one key way to cut costs, contractors must also consider long-term decisions, such as how to save money on the back end of a vehicle’s life cycle. The goal is to minimize the net depreciation and operating costs of the vehicle by managing its life cycle. Many fleet services companies have vehicle replacement cycling systems that ensure vehicles are replaced at appropriate intervals to achieve optimum performance and resale value, and remarketing professionals who can help business owners take the guesswork out of this process.

Soft Costs Add Up

No matter which method of funding your company chooses, there are many other benefits of fleet management, including saving time, decreasing management responsibilities, and making it easier to monitor fleet operation. These operational efficiencies can include:

  • Saving both the hard and soft costs associated with the administration of fleet purchases. For example: the amount of time the construction company owners or employees must spend on issues related to acquiring and disposing of vehicles, as well as managing maintenance appointments and invoices, insurance, and vehicle registration and reporting.
  • Holding onto vehicles with high mileage can mean higher maintenance and fuel costs, frequent breakdowns, and expired warranties, which may actually prove more expensive in terms of lost productivity.
  • Providing a replacement strategy that will ensure vehicles are replaced at regular intervals to increase the efficiency of the fleet for optimal performance and resale value. By monitoring factors, such as the time of year, mileage, vehicle type, age, and maintenance history, the guesswork is eliminated.
  • A managed maintenance program will monitor and ensure regular service checks, scrutinize invoices, and use its experience and expertise to guarantee the most economical, timely, and high-quality repairs for fleet vehicles. This includes arranging maximum warranty benefits, rebates, price breaks, and other opportunities to minimize expenses.

In addition to these potential cash-flow savings, the outsourcing of these fleet management functions allows contractors and their employees to focus on their core, day-to-day operations, which is critical given today’s challenging economic environment.

Posted In: ACCA Now, Vehicles & Fleets

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