Depending on your company structure and your financial strength, there are many considerations to discuss. Perhaps the most important among them is “is the fleet vehicle a core business asset?” For instance, if you are a transportation company and the fleet is the asset that generates your revenue, by definition it is a core asset. If you are a retail company, the asset may be a tool that helps you run your business well; however if your retail business expands to offer timely delivery service, this may change the importance of the fleet in your viewpoint.

Your company’s key considerations will help you identify the right funding options for your operation. You need to revisit these periodically to ensure that as your company’s direction and policies change, your funding decisions (or your combination of funding) evolve as well.

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Purchasing Pros and Cons

Fleet vehicles come with a high price tag. Not many companies are in the position to lay out a lot of cash or capital, nor is it an efficient use of your money. Purchasing fleet vehicles is a good option if:

  • The vehicle fleet is a core asset.
  • You are looking for simple accounting—the vehicle appears on the balance sheet as a fixed asset.
  • You want to take advantage of a tax depreciation benefit.

You probably should not purchase fleet vehicles if:

  • You want cash available for other investment opportunities.
  • You want to match your revenues and expenses on your balance sheet.
  • You want to receive maximum OEM fleet incentives.

Financing Pros and Cons

The financing option carries all the advantages of purchasing but instead of using cash, you’re using debt. Typically your company’s finance or treasury team will borrow a portion or all of that money and allocate an internal cost of funds to the fleet for those assets. Financing fleet vehicles is a good option if:

  • The vehicle fleet is a core asset.
  • You want to pay less cash up front.
  • You want to match your assets to your liabilities on your balance sheet.

You probably should not finance fleet vehicles if:

  • You want to match the vehicle’s useful life with the debt that is being used to pay for it.
  • You do not want to use up your overall debt capacity with providers.
  • Your financial strength is below investment grade.

With leasing, you can preserve your cash and debt to ensure they are available for business needs that do not have an alternative source of funding available. Leasing fleet vehicles is a good option if:

  • The vehicle fleet is not a core asset.
  • You want the costs of your vehicles to match the useful life.
  • You want to vary depreciation terms to match the type of asset you are leasing.
  • Your financial strength is below investment grade.
  • You need support with reporting, analytics and identifying the total cost of ownership of your fleet.

You probably should not lease fleet vehicles if:

  • You want to retain the tax depreciation benefit, although there are alternatives to help mitigate that.
  • You are challenged by the new accounting rules which will require some focus to ensure you achieve compliance.

Lined up side-by-side, here’s another comparison look at these three funding options:

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Take control of your fleet financials in the face of changing economic conditions. ARI’s experts provide the insight, tools, and support to improve how you select financing options, control operating costs, and support your organizational objectives. Contact us today.