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Purchasing vs Leasing fleet vehicles in the Americas

By Daniel Bland (Fleet Mobility Today Newsletter No. 17)

Twitter @DanielBlandBiz

Hello Fleet & Mobility Players!

Today, fleet operators can opt to buy their vehicles or lease them and what is best really depends on a few factors. To give you a better idea of what choice to make, let’s look at the fleet acquisition options faced by procurement professionals in the Americas.

As only about one in 10 companies in the Americas opt for outright purchases or offer cash allowance to fleet drivers, let’s consider the option of Buying with bank loans against vehicle Leasing in this article.

When buying, you face higher monthly expenses, but you own the vehicle after the traditional five-year loan period. For leasing, payments are lower, so this gives you an option to have a nicer vehicle. However, you don’t own it after the lease period (4-5 years).

Basically, leasing is cheaper during the first few years and buying could be better in the long run as long as you don’t mind having an older fleet and are ready to take on more maintenance. Note that both are impacted by national benchmark interest rates.

Financial Lease or Full-Service Lease

  • Portuguese note: Quando digo Leasing, estou falando contratos de longo prazo (3-5 anos) e não Locação de curto prazo (um dia-um mês).

  • Spanish note: Cuando digo Leasing, me refiero a contratos de larga duración (3-5 años) no a alquileres de corta duración (un día-un mes).

Leasing terms in the Americas do differ depending on the country. In North America, I see the Financial Lease being about three times more popular than Full-Service Lease (FSL), meaning that most procurement managers feel confident about determining residual value after the lease period. While this usually poses more risk to the lessee, it does give them more control and flexibility.

In Latin America, FSL agreements are much more popular than a financial lease. Since it is more difficult to determine residual values, fleet operators do not want to take on this risk and want more fixed terms. While FSL usually costs more than financial leasing, you have much less worries.

Other terms for these models are the open-end lease in North America and the closed-end lease in Latin America (also popular in Europe). Note that although Mexico is Latin America, it is also North America, so the country does favor the closed-end lease more than countries further south.

With this said, we can say that companies in North America seek to assume more responsibilities, and this means that they unbundle more fleet management services from leasing/fleet management companies than those in Latin America.

For instance, having direct control over insurance and fuel usage is favored by approximately half of the fleet operators I have spoken to in North America and a third in Latin America. Services such as maintenance and tire management, however, are unbundled to a lesser extent, especially in Latin America.

Regardless of the type of acquisition model you choose, it does look like leasing is here to stay - at least for now – so let’s take a brief look at this service.

Pros and Cons to Leasing

Peace of mind:Your financial responsibility is fixed, you will not have to worry about repairs and maintenance, and you will always have a car with the latest features and technology. Keep in mind that you will have more concerns when unbundling, but you benefit from more control and cost reductions if you know what you are doing.

Penalties:When leasing, make sure you calculate the proper mileage / kilometers to be used and negotiate this firmly in your contracts. You don’t want to be penalized for excessive usage or end up not driving enough. Moreover, to avoid penalties, you may not be able to cut your leasing agreements short, customize your vehicles, and you need to keep them in good shape.

Electric Vehicles (EV)

EVs could be a good option for leasing owing to the drop in residual values they see and facing outdated battery technology or charging standards which could prove detrimental for those who choose to buy them.

Moreover, there may be benefits for those that lease EVs. For instance, in the United States, those leasing EVs get a $7,500 tax credit without the restrictions a buyer may face. Know the government incentives given to leasing in your country.

Insight: Some of the main vehicle leasing players in the Americas include Element Fleet Management, Holman, Wheels, Enterprise Fleet Management, Localiza & Co, Ayvens, Arval, Merchants Fleet, TIP Mexico, Movida, and more. Contact me to learn more about them.

So, which option do you think is better? A financial lease, a full-service lease, an outright purchase, or maybe just offering a cash allowance to fleet drivers. 

Thank You, Gracias, Obrigado!

Daniel Bland

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