Pros and Cons of Buying Fleet Vehicles
Pros and Cons of Buying Fleet Vehicles
Whether you operate a freight delivery company, moving operation, or pest control business, you’ll inevitably require work vehicles to move products or deliver your service. At this crossroad, you typically have one of two options: purchase the vehicles or lease them.
But is it better to own or lease?
There’s no right answer to this question. It depends on your business, industry, risk tolerance, and a dozen other factors. To help you make a decision, let’s review the pros and cons of buying fleet vehicles outright.
Pros of Buying Fleet Vehicles
For certain business operations, owning your fleet can be quite appealing. By paying for the entire cost of the vehicle—via upfront cash or financing—you can enjoy the following advantages:
#1 Greater Control
Owners of a vehicle have total control and final say, which means they can use and deploy the fleet however they prefer. Specifically, fleet owners have power over:
- Fleet usage – Since it’s their property, fleet owners have the authority to set policies dictating how vehicles are operated and for how long; whereas many leases come with mileage restrictions that impose fees or penalties on overages, as well as locked-in term agreements that require you to keep the vehicle for a certain amount of time. But when you own your fleet, that’s not the case. As the owner, you are free to decide how much wear and tear your drivers put on the vehicles and whether the vehicles will be sold at a certain date to recoup some costs or simply driven into the ground.
- Maintenance – Maintenance schedules are a significant part of fleet management and are completely up to the fleet owner. You decide when routine maintenance is conducted, and by whom. In that scenario, maintenance is pay-as-you-go, without strict timelines or limitations on where you can have the vehicle serviced.
#2 Long-Term Savings
While there are obviously greater initial investment costs to fleet ownership, over the long run, purchasing your fleet can be a more cost-effective option, especially if you negotiate discounts and incentives from dealers. For instance, compared to fleet leasing, there are:
- No monthly lease payments
- No mileage overage fees
- No lease termination fees
- No penalties if the vehicle is damaged or experiences significant wear and tear
- No depreciation costs
- Lower insurance costs
As the fleet owner, you determine how long you keep the vehicle—there’s no defined lifecycle. So long as you treat the vehicles well and perform regular preventive maintenance, you can keep using your fleet vehicles rather than be forced to upgrade every few years. Therefore, the longer you’re able to keep the vehicles operational, the lower your total cost of ownership will likely be.
#3 Tax Benefits
Fleet owners can also take advantage of several tax benefits available to them, including:
- Depreciation – A purchased vehicle depreciates over time. As a result, owners can deduct the cost each year to reduce their taxable income and liability.
- Section 179 tax deduction – Section 179 of the US Tax Code allows businesses to deduct the full purchase price of qualifying work equipment, which means if you buy (or lease) the vehicles, you can write off the entirety of the costs during that current tax year. This includes 1:
- Vehicles that can seat nine-plus passengers behind the driver’s seat
- Classic cargo vans
- Dump trucks
- Heavy construction equipment
- Typical “over-the-road” tractor trailers
- Interest expense tax deduction – If you finance your fleet, you may be able to deduct interest expenses from the loan to lower taxable income and tax liability.
If the vehicles require certain modifications, technologies, or equipment unique to the company’s service offering, an owner can make any alterations they deem fit. So long as you abide by motor safety regulations, the vehicles can be customized to your specifications.
This also creates branding opportunities that wouldn’t be available with a leased vehicle. For instance, you can decide on a custom color scheme or include branded logos and messaging that promotes your business.
#5 Assets On Your Balance Sheet
One of the greatest advantages of fleet ownership is that it builds equity for your business, especially when the vehicle is fully paid off. These vehicles are considered assets on your business’s balance sheet, which can create several opportunities, including:
- Improved liquidity – If you experience cash flow issues or need to make a different purchase, you can sell your vehicle(s) to raise funds.
- Reduced liability – Leased vehicles are typically considered a liability on a balance sheet. However, when you own the vehicle, it’s considered a valuable asset.
- Increased borrowing power – Your valuable vehicles can be used as collateral to secure a loan or a line of credit, making it easier to access the cash needed to keep expanding your business.
Naturally, these assets depreciate in value with each mile on the odometer. But owners can then adjust their value on the balance sheet to reflect current market value.
Cons of Buying Fleet Vehicles
While fleet ownership provides several benefits, this may not be feasible for some businesses. For instance, some potential disadvantages of buying vs leasing vehicles may include:
- Upfront costs – Naturally, the largest barrier to entry for vehicle ownership is the upfront cost. Purchasing a commercial vehicle can be expensive, especially in the current fiscal climate. For small businesses and startups with limited cash flow, purchasing a vehicle may be cost-prohibitive.
- Depreciation – Vehicles can rapidly depreciate in value, especially if they’re used daily as a central component of your service offering. The more miles driven, the less valuable a vehicle will be on the resale or trade-in market. Therefore, if you need to upgrade your fleet frequently, ownership may not be the ideal method.
- Risk of obsolescence – Vehicle technology advances rapidly. If you purchase your fleet, you’re locked in with whatever technology is available at the time. Furthermore, if new technology provides a significant potential benefit to your service offering, you may need to upgrade sooner than anticipated
- Maintenance costs – Fleet owners are entirely responsible for anything that happens to their fleet. If you fail to perform proper preventative maintenance, you will be on the hook for all repairs or replacements. Aside from maintenance, learn more about how to reduce fleet costs.
Lease vs Buy Fleet Vehicles
So, is it better to buy your fleet or lease? Once more, there’s no universal answer. It entirely depends on your business and its specific needs. Even if you opt to lease, your competitor may determine that owning makes more financial and business sense for their company.
That said, fleet leasing can be advantageous if you:
- Have limited capital to spend
- Need to improve immediate cash flow
- Seek more flexibility in terms of regularly upgrading your fleet with new vehicles
- Want to avoid risks of ownership
- Don’t want to deal with fleet maintenance and repairs
- Prefer to have the newest safety measures and technologies installed in a vehicle
- Need to reduce administration costs
- Run a business that needs to scale for peak season
- Want additional consulting and support
Tips for Purchasing Your Fleet
If your goal is to maximize the value your fleet provides the business, consider the following tips:
- Review your budget – Do the numbers add up? Before you pay in cash or apply for financing, you should carefully review your business budget to confirm that purchasing a vehicle would make financial sense, broadly speaking. Equipped with this information, you can determine a realistic budget for purchasing and maintaining your fleet
- Carefully select your vehicle – Once you have a budget in mind, you can start researching the best available options. To that end, you’ll need to consider factors, such as:
- Vehicle brand
- Age and mileage
- Fleet fuel management
- Safety features (learn more about fleet safety solutions)
- Resale value
- Cargo space
- Cabin size
- Negotiate with the dealer – After you have narrowed down your options, you can speak to dealers. Ideally, you’ll want to find a seller willing to provide discounts, rebates, financing options, or deals for buying multiple vehicles.
- Plan preventative maintenance schedules – As a fleet owner, it's important to track the maintenance schedules of each vehicle. With time and usage, every vehicle will inevitably experience wear and tear. But you can minimize this by performing preventive vehicle fleet maintenance, which involves creating a formalized action plan that details the routine inspection, upkeep, and repair of your fleet. By addressing small problems before they can get out of hand, you can maximize the long-term value of your fleet.
Owning a Fleet
Fleet ownership is an expensive, long-term investment. It’s not a decision that can be made flippantly. Before you ever sign on the dotted line, you need to first verify that purchasing your vehicles is, in fact, the best route for your company.
If you do decide to own your fleet, your primary goal should always be to reduce the total cost of ownership. And seeing as fuel accounts for 60%–70% of a fleet’s operating budget, reducing your spend at the pump can have a significant impact on your bottom line 2.
But how do you accomplish that?
AtoB Visa fleet cards are accepted nationwide, making it possible to pay less at the pump while maintaining visibility and control over your fuel spend.
With the AtoB dashboard, you can set spending limits, track drivers’ live transactions, and receive intelligent insights that enable you to save even more.
Get started with AtoB today.
1 Section 179.org. Vehicles and Section 179. https://www.section179.org/section_179_vehicle_deductions/
2 USDOT. Evaluation of the Effectiveness of TPMS in Proper Tire Pressure Maintenance. https://www.fueleconomy.gov/feg/pdfs/811681.pdf