An Inexpensive Way to Automate: the Lease vs. Buy vs. Reimburse Decision

Lorillard Tobacco Co. in Greensboro, NC, leases its vehicles. But that doesn’t mean the company’s decision to lease rather than own or reimburse its drivers for personal use of their own vehicles is an easy one. "I’ve struggled through the calculations almost every year," says Lorillard Director, Fleet Operations & Travel Jim Anselmi. Anselmi is not alone.

Whether to lease, buy, or reimburse is probably the No. 1 question senior managers ask their fleet managers. Anselmi is also the president of the National Association of Fleet Administrators (NAFA) Foundation, which has heard fleet managers ask for ways to make this decision easier. In response to these requests, the Foundation has teamed up with the accounting firm Deloitte & Touche to create a spreadsheet program that will give fleet managers the ability to be proactive and answer the question before it is asked by his or her management. The program debuted at NAFA’s Fleet Management Institute last May in New Orleans.

How to Order the Software Package

The price for NAFA members or affiliates to purchase the NAFA Foundation’s Lease vs. Buy vs. Reimburse software program before Aug. 5, 1999 is $74.95. The price for non-members and non-affiliates is $154.95. (Both prices include shipping and handling.) Send a check to NAFAFoundation, 100 Wood Ave. S., Suite 310, Iselin, NJ 08830. For information, call (732) 494-8100. FAX: (732) 494-6789.

The program began when NAFA Foundation members saw that other spreadsheet programs addressed leasing versus buying, but not reimbursement or personal use allowances. Several fleet management companies had their own spreadsheet programs but didn’t distribute them, Anselmi said.

And they didn’t always include reimbursement in the calculations, he said. The Foundation got together with Deloitte & Touche, which reworked an earlier lease versus buy program. A beta test group of fleet managers then used it and gave the Foundation feedback on possible enhancements. A member of the beta test group was Janis Christensen, a fleet consultant who is the former fleet manager for TRW Information Systems in Orange, CA. She said the product was better than previous models she had seen.

"It’s very comprehensive," Christensen said. She liked that it showed almost all variables involved in making the decision, such as vehicle incentives, open-end versus closed-end leases, and mileage penalties on closed-end leases. Christensen said fleet managers often rely on their leasing companies to do the analyses. "But this gives you the opportunity to show your management that you can give input," she said.

Fleet Managers Can Change Variables, Make Assumptions

When a fleet manager first begins to use the program, it prompts the fleet manager through a series of questions, such as: What is your state sales tax? What is your lease tax? What is the expected service life of your vehicles? How many miles are driven per month, per vehicle? After those and other questions, the program makes the calculations and determines whether leasing, buying, or reimbursing is the most cost-effective option. The program includes inputs for federal and state taxes, includes a state sales tax option, a luxury tax calculation, and can address local taxes.

"You can change the variables, and do several different assumptions," Anselmi said. "The decision could be different based on your company’s inputs. That’s why this model is very helpful to the fleet manager in deciding which is the most economical and to be able to prove it to your CFO."

The many variables covered by the program continue into personal use. For example, if a driver is reimbursed $400 per month to lease a vehicle, that driver will have to pay taxes on that $400. "So now, for the driver to lease a vehicle, he would have to put more money into it," Anselmi said. "This shows you what allowance you would actually have to give to an employee. We’ve done the best we can to make this a fair and objective analysis so you can make an educated decision."

Contributors Who Made It Possible

The following organizations contributed funds to complete the project as of April 16, 1999: