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OPINION | Leasing vs. Ownership: A tough decision SA's fleet operators have to make

2020-10-02 04:30

John Loxton

fleet,wesbank

Fleet operations in South Africa (Wesbank)

• Fleet managers have to continuously assess whether to own or lease a fleet of vehicles.

• The decision is not as clear as one might think it is.

• Each business has its own unique needs, says John Loxton.

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To lease a fleet of vehicles versus ownership is a decision most fleet operators and businesses will have to make from time to time. The choice is a complex one, and making the right decision isn't always as clear cut as one might think or hope it is.

While financial considerations are most apparent, these are not the only factors to take into consideration. Trucking routes, seasonality, organisational preferences, the type of operation, and even the configurations of a fleet must also be considered. 

Each organisation has unique needs, which is why a flexible leasing solution that allows customers to select a variety of options should be investigated. The ultimate decision will depend on what is best for the fleet operator and the company at any given point in time.

fleet,wesbank

Fleet operations in South Africa (Wesbank)

Financing options

Irrespective of how a vehicle is financed, the cost of finance is usually the highest single cost of owning and operating a fleet of vehicles, other than for long-distance transport, where fuel is the largest cost element by far. There are a few options for financing vehicles, including outright purchase, financial leasing and an instalment option. No matter which option is chosen, in today's times, the focus for fleet managers should be on achieving the lowest cost of ownership. 

Full maintenance leasing from a third-party provider remains an advantage over the ownership model for a variety of reasons, the foremost of which are purchasing power and an expansive, reliable maintenance and support network. This is especially true for larger fleets where the business is motivated by the benefits from tax structures and cash flow.

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For example, a more extensive fleet may not need the depreciation benefit that comes with financing a loan and will decide to take advantage of leasing's lower payment options, which, basically, then allows them to allocate the monthly lease payment as an expense.

This also provides for shorter vehicle life cycles and will enable them to take advantage of the latest technologies as they become available.

fleet,wesbank

Fleet operations in South Africa (Wesbank)

No quick solution

There is no one-size-fits-all solution, and customers should have an ability to determine their own terms, financing arrangements, and the service delivery method of their choice. A significant benefit of financing a fleet is it that it offers fleet operators a specific, customised finance structure, with terms that match their particular needs.

More and more fleet operators are also acknowledging that while they need trucks for a job, they don't need to own them. They want productive vehicles to increase driving time, and to manage the rising cost of equipment, mainly due to emission rules and to new technologies that promise tremendous value. This places more emphasis on maintenance, with the need for more highly trained technicians, and more training as information coming off the trucks has to be understood. 

The result is that more companies are seeing that running fleets and trucking is not their core capability. They are becoming more and more comfortable with handing that function over to a specialist with buying and procurement experience, one that can assist with specifying the right trucks and equipment for their needs, as well as the ability to provide the all-important maintenance to ensure uptime. 

At the end of the day, it is not about one option being inherently better than the other, but rather which one is a better fit for an organisation's financial circumstances and total operations. What is highly beneficial for one company may prove to be a real problem for another.

John Loxton is the head of fleet management & leasing at Wesbank.

john loxton,wesbank

John Loxton (Wesbank)

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