When Should Vehicle Renters Consider Converting to Leasing?

Fleet Management, Leasing, Rental
November 18, 2014

Let’s say you’re a growth-minded business owner with two immediate goals: you need to expand your fleet of vehicles while, at the same time, controlling your costs. What do you do?

If you’re like many savvy business owners, you choose to rent rather than commit to the high cost of ownership. Rent or Lease Fleet VehiclesAnd why not? No contract commitments and affordable access to late-model trucks give you the flexibility to scale your fleet whenever demand calls for it. That’s just smart business.

However, when renting over the longer term, what if there was a next-step opportunity to unlock even greater value for your business? We’re talking about converting your rental contracts to a full-service lease.

The first thing you probably think when hearing the word “lease” is “higher monthly payment.” However, when factoring in all vehicle-related expenses, that’s not necessarily true. The reason why: leases can offer a powerful benefit that’s music to most managers’ ears: wide-ranging cost controls.

Because leases tend to be longer term than rental agreements, they often give you more flexibility to secure fixed pricing on vehicles, mileage, and fuel, shielding your business from transportation-related price increases and bringing you important savings. Renting also does this, just less efficiently.

So, when does converting a rental contract to a full-service lease make the most sense? It all depends on the amount of time and the length of travel you plan for the truck. The longer you need the truck and the farther you need to travel, the more powerful the benefits of leasing become.

To really demonstrate the power leasing fleet vehicles can have, let’s look at a hypothetical example. Let’s say you’re looking to do the following:

  • Rent or lease a tandem-axle sleeper tractor
  • Travel 100,000 miles per year (an average of 274 miles per day)
  • Be on the road 208 days annually (an average of four days per week)

In this case, how do your rental and lease options stack up, using industry standard-rental prices and fuel costs?:

Road Days Per Week

Road Days Per Year

Fixed Rental Cost @ $140 per day

Mileage Cost at @ 0.15 per mile

Total Rental Cost (Rig and Mileage)

Lease Cost (identical usage)

Savings from Leased Vehicle

4

208

$29,120

$8,548

$37,668

$36,900

$768

 

As you can see above, your business would actually save nearly $800 per year by leasing this truck compared to renting it. That’s real capital that your business would now have the ability to deploy elsewhere.

Now, what happens when you bump up the days of use by just one more day to five days a week? The results are astonishing:

Road Days Per Week

Road Days Per Year

Fixed Rental Cost @ $140 per day

Mileage Cost at @ 0.15 per mile

Total Rental Cost (Rig and Mileage)

Lease Cost (identical usage)

Savings from Leased Vehicle

5

260

$36,400

$10,685

$47,085

$36,900

$10,185

In this scenario, you’d save more than $10,000 a year—a significant sum. That freed up capital can be put in your pocket or put to work on more profitable initiatives in your business.

Such cost controls are a major cash flow tactic used by the largest companies—it’s one way they get so large. The beauty is, it works just as well for smaller businesses that can utilize the same mathematics. The economies of scale in leasing extend to financing, vehicle specification, configuration, acquisition, maintenance, and disposal.

Another way leasing flexes its muscles: customized, specialized services that often come baked into the contract. These vary with the type of lease and contract and often include:

  • Company branding on trucks
  • Safety programs
  • Driver training
  • Specialized equipment
  • Priority services
  • More robust DOT Maintenance Records
  • Electronic driver logs (fuel tax reporting, hours of service, and more)

Again, here’s where the length of time you need the truck comes into play. If you were to rent the same truck instead of leasing, the services mentioned above mostly likely would not be included in your contract. Over time, if you needed those services, you would have to purchase them “a la carte” as an added out-of-pocket expense.

At a bare minimum, the point here is clear: if you’ve made the wise decision to lower your vehicle costs by renting, you owe it to your business to run the numbers versus a full-service lease the longer you rent and the more you use your truck. Your rental agent will be able to help you do this. By running the numbers, you may just find that converting to a full-service lease unlocks unforeseen next-level value for your business.

 

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