Of all the commercial vehicles in the United States, approximately 40% of them are leased. However, when I walk into a company that falls into the other 60% category, it is usually because of misinformation that they chose not to lease.
It's not anyone’s fault that the company was given the wrong information, it is that retail car dealers rarely understand commercial leases.
What is a Commercial Lease?
When we talk about leases in a commercial or fleet application we are generally referring to open-end leases. Open-end leases mirror ownership in that there are no mileage restrictions or wear and tear charges. The company shares in the gain or loss from the sale of the vehicle. However, instead of it being a capital expenditure, the vehicle becomes a monthly expense with a planned cycling point. Also, planning allows time to order vehicles instead of buying them off the lot so they are tailored to fit your exact demands.
What happens in an open-end lease is that an anticipated market value at the time of cycling is determined. This value is based on the expected use and wear and tear of the vehicle. The monthly payment is then determined to amortize the cost of the vehicle over the length of the lease. From there the company uses the vehicle however they see fit. Once the vehicle is cycled with a new vehicle, the old vehicle is marketed for the highest possible amount. Assuming market predictions were correct, there is no additional expense. However, should the vehicle sell for less than expected, that difference will have to be made up but at the same time, if the vehicle sells for more than expected, the business profits.
At Ewald Fleet Solutions, we offer a variety of fleet management solutions including leasing company cars and trucks. Our goal is to enhance your company’s profitability and improve cash flow. Contact our team today to get started.
Benefits of a Commercial Vehicle Lease
What is nice about open-end leases is that they do not lock a business into stringent constraints. You can terminate your lease any time after 12 months. If the case is made to replace the vehicle before the original lease term, it can easily be replaced with a new vehicle. This saves the company money by maximizing the market value and minimizing maintenance costs. Other benefits include:
- No down payment
- Unlimited miles
- Better wholesale repair rates
- Consolidated vehicle billing
What is a Consumer Lease?
A consumer lease is generally written by a car dealership and financed through a bank. The value of the vehicle is set by the financial institution. In a consumer lease, you have a mileage cap (typically between 8,000-15,000 miles). If you go over those miles, you can expect penalties and fees. If your employees use consistently low business miles, they take care of the vehicle and are stable in the company, a consumer lease might work well.
Disadvantages of Consumer Leases
- If your vehicle doesn’t meet dealership standards, you may have to pay a fee for wear and tear or vehicle damage.
- You must fulfill the entire lease term (2 to 4-year leases are most common)
- Each vehicle you lease is billed and written separately with its own terms and details
- You have to handle the tax, title and registration of the vehicle
- Down payment may be due at signing
Generally, open-end leases are the best way to accommodate commercial fleet applications.
Contact Ewald Fleet Solutions if you’re interested in starting a commercial vehicle lease program. We help manage all the aspects of your fleet so you can focus on what your business does best.