Viewpoint: A quick fix for fleets
Government agencies must keep their fleet operations running during recessions because roads have to be repaired, garbage must be collected and parks must be maintained. With little or no money to buy new vehicles, most government fleets quickly re-assign surplus vehicles in the best condition and dispose of the rest. To save additional money, oil changes and other routine maintenance can be delayed, but those measures can eventually lead to increased maintenance costs and downtime, as well as lower equipment resale values.
When new trucks are needed, government fleets might consider full-service leasing as an alternative to traditional purchases. Leasing only requires agencies to pay for the truck’s use and maintenance — not the truck itself. When leasing new trucks, government agencies do not have to make large up-front payments or manage equipment maintenance, which can be helpful for fleet departments with small staffs. And, with leasing companies handling maintenance, parts inventory can be reduced. Leasing also can eliminate an agency’s exposure to the variability of resale values, which often depends on the timing of the sale.
Instead of stretching capital expenditure budgets to purchase fewer replacement units, agencies can cover annual lease payments on several new pieces of equipment, depending on make, model and specifications. If there is a need for substitute or extra equipment, in case a truck breaks down or there is a spike in projects, the leasing company can provide that extra equipment as needed.
A variety of trucks are available for lease, including hybrid vehicles, which reduce fuel costs and emissions. Local or regional work trucks that run in stop-and-go traffic or travel at less than 45 to 50 mph can improve their fuel economy by 30 percent or more with hybrid diesel-electric trucks. Utilities and agencies operating medium-duty trucks with booms, cranes and other equipment that draw power from the trucks’ engines, can improve fuel economy by as much as a 50 percent with hybrids.
Elected officials and government fleet managers should consider preparing a cost-benefit analysis between leasing and owning medium-duty to heavy-duty trucks to determine which options best suit their operations. The factors they should weigh include 11 basic items or costs — six for ownership and five for leasing:
- Initial cost of equipment: the original purchase price and additional equipment such as van bodies, tool boxes, headache racks, auxiliary power units, etc.;
- Interest rate if considering a loan, length of loan and down payment;
- Length of asset life: how long the agency will use the equipment;
- Maintenance costs over the equipment’s life;
- Administrative costs for licensing and tracking DOT compliance, plus the general and administrative costs of managing the fleet’s maintenance;
- Net present value calculation of the monthly payments, finance cost, and maintenance cost over the equipment’s lifetime.
- Lease rate;
- Variable cost (mileage rate) if a full-service lease;
- Length of lease;
- Net present value calculation of the lease payments over the equipment’s lifetime;
- Residual responsibility: is it yours or does it belong to the lessor?
Truck ownership has been perceived to provide better control, but in many situations, it also carries risks. They can include the value of the equipment at trade-in time; unpredictable maintenance costs over the equipment life; obsolete or stranded assets because of improper replacement cycles; increased costs from new regulations; plus hiring, training and tooling technicians to keep up with ever-changing truck technology.