ACHRNEWS

Incentives To Purchase Vehicles: Is It The Best Choice?

November 2, 2003
While businesses continue to consider various alternatives to trim expenses and improve cash flow, it's important to recognize that some of the most tempting offers can actually end up being more costly. For example, zero percent financing, which works well for purchasing personal vehicles, may not be the best choice for businesses with small to mid-size fleets. Similarly, buying or financing vehicles to take advantage of new tax rules must also be weighed against all alternatives.

According to Enterprise Fleet Services, leasing vehicles under a tailored vehicle management program can be a better alternative than a cash or financed purchase. In addition to improved cash flow, companies save on administrative costs, and may also achieve "off balance sheet" reporting.

By funding your vehicles through a full-service fleet management company, businesses avoid tapping lines of credit to fund a depreciating asset, i.e., a fleet of vehicles.

"Many of our customers have found they could preserve their existing line of credit for needs associated with growing their business, and establish a separate line of credit with us for the purchase of their fleet," said Steve Usselmann, assistant vice president of finance at Enterprise Fleet Services. Additionally, while most leases do not require a complete payback of the principal balance of the vehicle, traditional forms of financing or outright purchase generally require a complete payback of principal. As such, leasing often improves cash flow.

While Enterprise maintains that customers and their financial advisors are ultimately responsible for determining the correct accounting and tax treatment for the lease, a typical example outlined by Enterprise strongly supports the case for fleet management and leasing. (See Table 1.)

Some outside tax advisors for businesses with small to mid-size fleets agree. "Our clients who have leased vehicles under a tailored vehicle management program with Enterprise have been very pleased with the cost savings," said David J. Maher, CPA, president of Maher & Company PC, a certified public accounting and business-consulting firm in St. Louis. "From a cash flow perspective, the leasing provides a nice benefit to our clients."

Table 1. The case for fleet management and leasing.


Leasing Opens The Door To Additional Savings

In addition to the immediate benefits of leasing, a comprehensive fleet management program offers measurable long-term value by planning for the future.

"Not only is leasing a sound option for owners and managers who want to use available capital to grow their business, an effective fleet management program provides a comprehensive approach to saving money on everything from acquiring vehicles to replacing them at appropriate intervals," said Usselmann.

"Because we have more than 11,000 companies that obtain funding and other ancillary services through Enterprise, we help our customers obtain vehicles at highly competitive prices, ensuring they receive the maximum discounts, rebates, and incentives available," he said. "In addition, companies have the opportunity to maximize the sale of the vehicle at the end of the lease because of our network of more than 500 sales representatives dedicated to remarketing. The bottom line is that we almost always save money for companies when we buy and sell their leased vehicle."

A company with 26 vehicles located in Tampa, Fla., found that a major benefit of fleet management was the cost savings. "Although we have only 26 vehicles, outsourcing our fleet management program has saved our company considerable time and expense," said the company vice president. "The program allows us to ensure our fleet vehicles are in line with our lease terms, giving our company the opportunity to maximize the equity at the end of each lease. Instead of tying up our capital financing a vehicle, we invest it in building our business and servicing customers."

Another company in Stratford, Conn., which has a fleet of 25 vehicles, found that outsourcing their fleet significantly lowered monthly payments and increased cash flow by enabling them to quickly sell and refinance nearly half their fleet. In addition, they improved cost efficiencies by implementing a vehicle replacement cycling system that ensures vehicles are replaced at appropriate intervals, achieving the best resale value and the lowest net depreciation on the vehicle.

No matter which method of funding vehicles a company chooses, there are many other benefits of fleet management, including saving time, decreasing management responsibilities, and making it easier to monitor fleet operations. These "soft cost" savings can be substantial. Time savings arise from acquiring vehicles, arranging financing, and handling registration to managing fuel expenses, routine and emergency maintenance, insurance claims, and vehicle disposal, as well as general fleet maintenance. Based on a 48-month cycle, it is estimated an average of 80 hours can be saved for one vehicle over the term of a 48-month lease. Assuming an average hourly rate of $20.00, these "soft cost" savings can amount to roughly $1,600. For a fleet of 25 vehicles, these savings would amount to $40,000.

"It is safe to say that fleet management can provide good cash flow alternatives," said Usselmann. "However, when you add in the "soft cost" savings, this decision becomes a no-brainer."

For more information about Enterprise Fleet Services, call 877-233-5338 or visit www.enterprise.com/fleets.

Publication date: 11/03/2003