Know the numbers when auto leasing lures — the convenience may bear a price
By Susan Nord, of SBT
Has the lure of low, low leasing prices tempted you or your company to look into leasing an automobile?
From a consumer standpoint, leasing is often a lifestyle choice. An individual can lease more of a car than he or she could normally afford. “There’s more emotion tied to it,” says Dan Ewald, president of Mayfair Leasing in Waukesha.
But businesses try to take the emotion out of the decision and analyze the buy vs. lease question carefully.
Cash flow is often the biggest factor in the decision to buy or lease. Purchasing a vehicle requires a large outlay of cash, including sales tax, in the first year. Leases can spread payments over several years. Theoretically those payments should be smaller, as the business should only be paying for the value of the car it will use over the life of the lease, plus interest and sales tax.
“It’s like renting office space,” Ewald says. “There’s a tremendous amount of money that can be tied up in brick and mortar in owning a building. [Business owners] don’t want to be the landlord. They don’t want to have to take care of the maintenance and everything associated with it. They just want to go in and run their businesses. And we feel pretty much the same with the vehicle leasing aspect of it.”
Ewald points out that many of his clients choose leasing because they don’t want the hassles that come with owning a fleet of vehicles.
Jim Sayles, president of Best Block Co. in Menomonee Falls, agrees.
“We’re a small business and we have 25 vehicles,” Sayles says. “There are some small dealerships that don’t have that many vehicles. I don’t want to be in the car business.”
Sayles’ fleet is half owned, half leased. “There are times when it’s economical to own and times when it’s more economical to lease,” Sayles says. “Right now, it’s sort of both.”
One of the aspects Sayles likes about leasing is the ability to set up leases locally and have vehicles delivered throughout the country to his sales representatives. “It’s an essential part of our operations,” he says of leasing.
Insurance factor
As with any decision, there are pros and cons associated with leasing. An astute business owner can negotiate a lease agreement that does help cash flow. But leased vehicles come with restrictions and limitations, too.
A limitation on the amount of mileage placed on a vehicle is probably the first thing thought of when discussing lease disadvantages. “If you deal with professionals like ourselves,” Ewald says, “we’re going to do a good job on the front end qualifying the type of mileage that you drive, and then we’ll structure the lease that way.” But the more miles you drive, the faster the car depreciates and the more you end up paying – through the monthly lease payments.
Another item to weigh is the cost of insurance. Ewald says Mayfair requires lessees to carry $250,000/$500,000 combined single-limit coverage per car. That’s a little steep, according to a local insurance agent. Scott Rodrian, vice president of Rodrian Insurance in Brookfield, says normal business coverage for cars is $100,000/$300,000 combined single-limit. And he points out that many leasing companies require lessees to have maximum deductibles of $500, which increases premiums.
“That’s definitely something people should factor into their decisions when they’re looking at leasing (versus buying),” Rodrian says.
Another issue that may slip through the analysis is the purchase of gap insurance. Gap insurance, as the name indicates, covers the gap between the value of the car and the amount still owed on the lease, including possible penalties for early termination. It’s important to have in the event the vehicle is stolen or totaled.
Besides cash flow, there are other advantages to leasing. “If they’re standing on their own, considering the size of their fleet, they might not have a lot of clout,” Ewald says referring to maintenance problems. “We can call up [the manufacturers] and say, ‘We own 500 of your vehicles in our fleet and we need some help on this one. My client is 5,000 miles out of warranty, but we need you to step in and offer some assistance.'”
Ewald’s staff provides clients with suggestions on getting company-wide fuel cards that make tracking fuel purchases easier. “And although we don’t have maintenance programs, per se, within our company, we’re familiar with national fleet programs that we can bring to our clients that can save them money on their maintenance expenses,” Ewald adds.
