Published April 2005

Leasing, fleet management
and your bottom line

By Evelyn Lane
Guest Columnist

In the market for cars for your sales force? Vans for delivery drivers? An executive vehicle? Whatever the need — and whether your business uses a few cars or hundreds — you should know how leasing and fleet management experts can affect your company’s bottom line.

Leasing rather than purchasing can provide companies with much more flexibility and control over maintenance arrangements, mileage, replacing and trading in vehicles and taking vehicles in and out of service.

Leasing may not be right for every company, yet it’s an option that you should carefully consider. To determine if leasing is right for you, ask yourself these questions:

Are you getting the most tax and financial benefits out of your vehicles? Are you or your employees wasting time selecting, buying, servicing and managing your fleet when you could add more to your bottom line by focusing on your core business sales and service?

If you operate just a few vehicles in a single location — and you have established a good relationship with the company that sells and services the vehicles — then you may not need to move into leasing.

However, if your needs are more complex, for example, if your company has grown and you’re spending too much time on fleet management, you should talk with experts who can explain the “Three C’s” of fleet leasing: cost savings, convenience and control.

Leasing can result in several cost benefits, including 100 percent, off-balance-sheet financing, where the vehicle payments don’t appear as a liability on your balance sheet. This also can increase your company’s credit availability.

Further, there may be tax benefits. For example, it may be more advantageous to deduct lease payments than to depreciate a company-owned vehicle. Talk with your tax adviser about this and other tax issues related to leasing.

Up-front costs for customization such as ladder racks and interior storage bins for a contractor’s van can be financed as part of the vehicle lease. A fleet management provider can help you order vehicles with these fittings already in place — saving you the time and inconvenience of separate purchase and installation.

Leasing also may be a valuable employee-relations tool. Many employees may prefer to drive company vehicles rather than be reimbursed for business use of their personal cars, so providing company cars may be one more benefit to help you attract and retain skilled and experienced workers.

Further, you get the benefit of managing what types of vehicles are being used to represent your company while you ensure proper maintenance to keep the fleet in top condition, preserve its value and minimize losses due to breakdowns.

Another important question to ask yourself is: Do you need the services of a fleet-management company?

Again, if your vehicle operations are simple — very few vehicles of a single type used in one city, for example — you may not need help with managing your fleet. If your operations are more complex and require more active administration — service vans, delivery vehicles and executive cars driven by different employees in several areas — then you may need the services of a fleet management company that can help with selection, titles, taxes, insurance, maintenance and other issues.

A full-service fleet management provider has the expertise to build a program that is right for your company and can be your single source for selection and acquisition. Further, a provider who deals in all makes and models can help you select the right vehicle for your needs from a wide range of manufacturers.

While open-end leasing is the most common type of business vehicle lease, closed-end leasing also is available, and a fleet provider can help you decide which is best for your company.

For example, open-end leasing may offer the flexibility you need in financing, vehicle selection, administration and replacement timing. If you have limited vehicle needs with predictable mileage and replacement timing, closed-end leasing can be a cost-efficient option. Here’s how these options differ.

• Vehicle selection, options and equipment — With open-end leasing, you may choose any make or model vehicle from a single source. With closed-end leasing, selection, options and equipment may be limited, and you may have to work with multiple sources to find what you need.
• Acquisition — With open-end leasing, up-front costs are limited to such items as tax, license and title fees. Closed-end leases can include additional, significant costs including down payments and security deposits.
• Lease terms — With open-end leasing, terms are flexible, there are no mileage or wear restrictions and you can terminate the lease without penalty after 12 months. Closed-end leases may have more limited terms, including penalties for early termination and restrictions regarding wear — and you may have to “buy” extra miles if you exceed the lease limits.
• Scheduled maintenance — Maintenance programs and reporting are available with open-end leases. In closed-end leases, the lessee is responsible for maintenance.

Whether you choose to purchase or lease, if you take time to examine your options you’ll be well on the road to maximizing profitability of your vehicle fleet.

Evelyn Lane is the Northern Washington Business Banking manager for Wells Fargo. She can be reached by calling 425-252-1620 or by sending e-mail to laneevel@wellsfargo.com.

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