To Buy or Not To Buy: A Guide to Sourcing Fleet Vehicles
Is water wet? Are hot dogs tacos? Is Dad ever coming back with those cigarettes? These questions have plagued mankind since the beginning. More recently, fleet managers and CFOs around the world are asking a more important question: should I be buying or leasing commercial vehicles?
Fleet professionals shouldn’t view the question in terms of one versus the other. The answer is tied to the larger picture of proper capital forecasting and the long-term impact your decision will have on your company’s finances.
Owning an asset means managing its acquisition, depreciation, operation, maintenance, repairs, and eventual disposal.
Leasing a vehicle means that you only pay for the portion that you use, leaving you with more capital to operate and grow your business.
Most fleets finance their vehicles through a combination of buying and leasing because leveraging debt is a huge part of the growth equation. Order too many vehicles and an underutilized fleet could cost you a fortune without generating revenue. Don’t order enough and you could miss out on new business.
All fleet planning comes with uncertainties. When unforeseen circumstances arise, or when dealerships and leasing companies aren’t able to provide vehicles, there is a third, more versatile option that compliments your purchasing and leasing strategies.
When To Purchase
Purchasing makes the world your oyster. You can douse it in butter and slurp out the insides. You can order a bottle and impress your friends. Purchasing lets you not worry about going over your allotted miles or paying hefty fines for wear and tear. The biggest benefit to purchasing is that there are no restrictions—it’s your vehicle to play with or neglect however you see fit.
Benefits of purchasing: flexibility in vehicle disposal; reduced cost; tax benefits; equity reinvestment; boost in self-esteem.
Who Should Buy?
Purchasing may seem like the most intuitive option, but it comes with the greatest financial burden. Companies should only buy vehicles when they are absolutely certain how many they’ll need. This includes small fleets—like plumbing startups or neighborhood landscapers—who just need a couple of vehicles and don’t want to worry about mileage or damage. If a fleet doesn’t need enough vehicles to bring down the price of a lease, it makes sense to buy. Medium and large fleets will typically purchase a percentage of their vehicles to take advantage of various depreciation schedules.
When To Lease
“When I bought the Rolls-Royce they thought it was leased.
Then I bought that new Ferrari, hater, rest in peace”
The biggest advantage of leasing is the low initial investment. Instead of paying for the vehicle itself, you pay for the portion you use. There’s no obligation to pay the full value, and the upfront payment is significantly lower. You can enjoy all of the benefits of having new vehicles without incurring additional costs or liabilities, making it easier to invest in and grow your business. Leasing can reduce your total cost of ownership by 10–15%, but you won’t own the vehicle at the end of the lease.
Benefits of leasing: free up borrowing capacity; preserve capital; preview new safety features; replace vehicles easily; commitment issues? That’s okay!
Who Should Lease?
Fleets with over 50 vehicles will find leasing to be the most convenient. Enterprises with hundreds of vehicles will lease the majority of their fleet so that they are not obligated to pay the entire price tag upfront. Fleets that lease through an FMC will receive a litany of services, including more purchasing power and cost savings.
When Does Renting Make Sense?
Ask an old boy about rental vehicles and they might spit at your feet in disdain. “I ain’t paying more for an empty van from Enterprise,” they might say. And they’d be right! Rental has long been a dirty word for fleet managers who don’t want their employees driving outdated, unmarked vans at a high weekly cost. But the attitude towards vehicle rentals, and their functionality within commercial fleets, has come a long way. The most effective fleets are able to adapt when uncertainties arise.
What if you need vans quickly but only for six months, like during peak season or for a certain project? Or if you need to supplement your fleet while you wait for your OEM allocation? Maybe you want to test a new technology to see how it performs before making a major investment. The main advantage of renting is the convenience it offers. Rental vehicles are readily available, meaning no more extensive paperwork and negotiations associated with purchasing or leasing.
Say you own a landscaping business, and you need extra vehicles during the spring and summer months to transport employees and equipment. Renting vans might cost more than a lease for the same time period, but you can return them when the season is over rather than being shackled to them in the off-season.
Or maybe you have a solar company and you’re planning on expanding into a new market. The local electric company has signed off on net metering and the state has passed tax credits for renewable energy. Now it’s a race to get to market between you and all the big players. You can’t afford to wait 9 months to get vans from a dealer. On top of that, this gold rush has the potential to turn up only dirt. If things don’t go as planned, you might get stuck with a bunch of vehicles collecting dust and draining your funds.
Rental companies (such as Kingbee) have hundreds of vans available now, meaning there’s no wait. Less time waiting around means more days satisfying customers, meaning more money in your pocket.
Benefits of Renting: avoid maintenance costs; crush the peak season; survive high-turnover; save on ownership costs; return vehicles when you’re finished.
Who Should Rent?
Small fleets, large fleets, short fleets, tall fleets—fleets of every size. Fleets that experience high turnover or need vehicles quickly. Fleets that can’t afford to wait another six months for OEM allocation. Renting is for when you win a big contract or only utilize vehicles seasonally—it allows you to avoid committing to a vehicle that ends up becoming a spare when the project ends.
Renting is for when sh*t hits the fan and waiting is not an option. Renting is for when time = money. The lease, buy, rent question is not an either/or choice. For most fleets, the answer is all three, and it all boils down to which combination is the most cost-effective. A combination of long- and short-term assets will help you adapt to unforeseen circumstances.
Kingbee Compliments Your Current Fleet Strategy
When vehicles aren’t available through traditional avenues, or when cashflow is tight, Kingbee provides vans right away. Since its inception, Kingbee has helped the nation’s leading solar companies scale their fleets at an unprecedented pace. They’ve also helped small businesses who needed new vans because their orders with dealerships were canceled.
In 3-4 weeks, you could have new vans that are wrapped with your company’s branding and upfitted with shelves and racks, all without adding to the balance sheet. Kingbee compliments your current funding strategy and offers a third avenue for funding vehicles, alongside leasing and purchasing, so you don’t miss out on revenue while you plan for a more long-term solution. Call (828) 546-4233 to see how we can help you meet your fleet goals.