Company vehicles: lease or buy?

The biggest cost for any business after office rent and staff is vehicles.

New Zealanders traditionally buy their cars rather than lease them. In fact, only 25 per cent of small fleets and 40 per cent of large fleets are leased. 

But is buying the right decision? There are several factors to consider – cost, expertise and resources.

Can you save money by leasing? Lease companies say you can. Charles Willmer, who heads LeasePlan, says it frees up capital, with a corresponding improvement in cashflow. He asks, “Why sink capital into a vehicle when a business could lease? Then the question becomes, can they afford it on a monthly basis rather than can they outlay a large amount of cash for a vehicle?” The answer, he says, is often yes.

Willmer sees quite a difference between large and small businesses in the way they measure costs. Smaller businesses tend to look at cashflow while larger companies examine the total cost of ownership, he says.“Larger companies do their analysis on vehicle types whereas small companies tend to say, ‘We always have Corollas and go get three quotes on Corollas without doing their homework to find out if another vehicle would cost less to run. They don’t recognise this as being important.”

Willmer says if smaller companies were to "stick to their knitting” and concentrate on doing what they do best, and handed over responsibility for their fleet to a lease company, it would free up resources. He says, “It’s time-consuming to do the research; lease companies have the systems, the knowledge and the expertise to handle it for you.”

Another factor in the lease or buy equation is the ability to save money through economies of scale. Small business don’t have the clout to demand discounts on vehicle purchases or running costs. Lease companies both can and do, and pass those savings on to their clients.

Leasing allows companies to keep greater control of their operating costs, to plan routes better, and to choose vehicles that give them the best value for money over the longer time.

For example, using GPS technology and a lease company’s systems allows a delivery 

company to plan its routes, to cover the most ground with the fewest kilometres. This could potentially mean a reduction in the number of vehicles it operates or the use of a more appropriate vehicle, for instance using one larger vehicle rather than two smaller ones. 

Another advantage, says Willmer, is that by using a lease company’s preferred supplier network less time is needed off the roadfor vehicle servicing, again saving timeand money.

Businesses will come to their own decisions on whether to lease or buy but Willmer suggests that a full examination of the issue is a good first step.

Things to consider:

• Is cashflow more important than capital in your business?

• Do you look at the total cost of ownership of your fleet or merely monthly costs?

• Could economies of scale help reduce your overall fleet costs?

• Are you choosing your vehicles for their best fit or because that’s what you’ve historically owned?

• Are your cars spending more time off the road for servicing and repairs than you can afford?

Lynnaire Johnston is a freelance writer. This article first appeared in the Auckland Chamber of Commerce's Innovate magazine.