Catherine Ashurst* When it comes time to upgrade your fleet/company vehicles, businesses are faced with the decision buy or lease?
It is important to take some time and weigh up your options when it comes to making that financial commitment. There are benefits for both options, although ultimately it will come down to your companies’ position.
However, it is important to go through the process and look at the Pros and Cons of both options in order to find the best fit for your business.
Company vehicles can often be one of the largest commitments a business will make. Yet many businesses make these decisions without reviewing all the options. Further to that the size of the company; turn over, staff levels all contribute to the needs of the company changing over time.
The strategy deployed should match other parts of a business and evolve with the business.
There are benefits for both leasing and purchasing; ultimately, you need to ensure the benefits of the option you select truly reflect what your business needs. After all for many businesses the company car is something the public and our customers will see as a representation of your company. What does your company car say to them?
Purchase / “Ownership”
Buying a vehicle outright brings with it a high up front cost, whether it be a full payment for the purchase of the vehicle, or a down payment with monthly loan repayments required thereafter.
Buying is often a preferred option if you:
- • Do not consider having a new vehicle every three or so years important
- Are not concerned with operating cars for extended periods beyond vehicle warranties
- Travel a considerable amount of kilometers in your vehicle each year (40, 000km+ per year)
- Do not want to be committed to a fixed term contract
- Have an abundance of capital or cap ex to commit to purchasing.
- Would like to manage the depreciation of your company cars yourself.
Businesses are upgrading their fleets more often, which requires having a more flexible approach to fleet management.
Leasing “Non Ownership”
The concept of leasing is relatively new. It first appeared in the USA in the 1700’s and was used as a tool to enable expansion of the trail and road network into the wild wild west. It was not until around 1914 that it made its move into the automotive sector.
Leasing does have some very strong advantages for businesses.
- All lease repayments can be treated as a business expense (but are also eligible for personal usage and fringe-benefit deductions)
- Maintenance and other variable costs can all be included in the lease repayments
- A fixed monthly cost can be easier to budget and forecast within a business
- Leasing reduces expense by only requiring that you pay for how much you are using the vehicle. Not the entire cost of the car.
- You have the option of upgrading your vehicle at the end of the lease term.
- Depreciation, GST claw backs etc. are all managed for you. No extra admin required
- Leases can now be done to match manufacturer warranties meaning you will not be faced with a huge cost of repair on a car that has exceeded its warranty.
There are a lot leasing companies out there, so when you are considering and comparing leasing options, here are some pointers :
- Is maintenance included and what are the terms? i.e. mileage and term
- Are tyres included in plan and if so how many?
- What are the extra costs involved? e.g. for excess kilometre charges
- Are under kilometre rebates offered?
- What are the expectations on the return of the vehicle at the end of the lease term?
- Do you have a dedicated and knowledgeable account manager assigned to your business that knows the correct questions to ask based on your requirements, is readily available and able to assist throughout the life of the lease?
What may be the biggest factor in deciding whether to buy or lease is the current rate of car depreciation in New Zealand.
It’s now not uncommon for a vehicle to lose half its market value within three years, so for many businesses the option of putting capital towards an asset that depreciates to this extent makes little sense.
Whatever option you decide to go with you need to ensure it fits with your business needs both now and in the future.
*Catherine Ashurst is corporate account manager at Honda Financial Services and may be contacted at firstname.lastname@example.org or via LinkedIn