*updated April 29, 2025
When you think about your fleet, does your bottom line come to mind? Do you consider your vehicles just another expense without the corresponding benefits? Your vehicles can be powerful tools to improve cash flow, drive profitability and increase productivity within your business. If that’s not something you’ve considered before, it’s time to look at how your vehicles are more than just a way for your drivers to get around.
Optimizing your company’s purchasing strategies, your fleet’s total cost of ownership (TCO), and maintenance planning can help turn your fleet into a significant source of business savings. Are you buying or leasing your fleet vehicles? Is the lease structure optimal for your business? Once you have your fleet, how do you keep them running and on the road? Is it essential to have a maintenance plan? Find the answers to these questions and more as we walk through different strategies and tactics to drive costs down and keep efficiency up.
Money down or money saved?
There are pros and cons to purchasing and leasing depending on your company’s strategic goals, the plans for fleet vehicle usage, and the current state of the economy, including interest rates, inflation, and the supply chain. For example, leasing may be better if you own your fleet vehicles but are looking for greater flexibility. However, purchasing could be the better option if your fleet tends to keep vehicles on a long life cycle. Interest rates and the cost of the funds to borrow can also affect whether leasing or purchasing is the better option. Consider the following:
Leasing
- Ideal for fleets with a cycling strategy or high vehicle turnover.
- Only pay for what you use (closed-end) or align cash flow (open-end).
- Lower upfront costs with flexible monthly payments. Can choose the optimal lease structure or funding strategies for your business objectives.
- Sales tax applied upfront and across monthly payments.
- Ability to scale during peak business periods.
- Increased cash flow and can build and roll over equity (open-end only)
- Predictable total cost of ownership (TCO) due to a fixed monthly payment that covers vehicle expenses.
- Reduced non-preventative maintenance expenses and less age-related issues.
- Can easily upgrade to a newer year model.
- Lessor handles remarketing and disposal. The lessee can turn the vehicle in or purchase it for its residual value.
Purchasing
- Better for fleets maintaining vehicles long-term
- Full ownership.
- Higher acquisition costs with fixed payment structure. No optimal purchase structure.
- Sales tax paid on full purchase price upfront.
- Limited flexibility for seasonal scaling.
- Greater equity establishment.
- Less predictable total cost of ownership (TCO), requiring planning for maintenance and depreciation.
- Higher maintenance costs and more likely to run into age-related issues.
- Less vehicle cycling means fewer vehicle upgrades.
- Owner handles remarketing and disposal.
Lease structure options
A strategic assessment and evaluation of your current situation and future fleet goals will help determine your business's best structure. Additionally, leasing allows for multiple structures: closed-end and open-end. Here’s what the differences are and what that means for your business:
Closed-end lease
- Structured, predictable option where lessor assumes depreciation risk.
- Ideal for businesses with cash-flow concerns or unpredictable budgets.
- Preserves capital for other business needs by saving on expenses.
- Simplifies budgeting and eliminates surprise expenses.
- Limited flexibility but protection from market fluctuations.
- Offers fixed rate options, where interest rates are the same the entire lease.
- Best for businesses on strict budgets, consistent mileage fleets, and those seeking protection from residual risk.
Open-end lease
- Flexible option where lessee assumes depreciation risk.
- Suitable for companies keeping vehicles long-term or requiring specialized upfitting.
- Offers ownership benefits and equity building without large capital expenditure.
- More complex budgeting, but advantageous for companies willing to accept risk for potential profit.
- Provides greater flexibility and offers options in the event of unexpected fleet changes.
- Options for fixed or floating interest rates. Fixed is the same as closed-end, but in floating options, interest rates fluctuate.
- Best for businesses needing flexibility, remarketing experts, specialized upfitting needs, rough usage fleets, and private equity-owned companies.
Reducing fleet costs does not have to be a complicated process
Once you acquire your vehicles, the next step is keeping them on the road and out of the shop. A comprehensive maintenance management plan ensures your fleet maintains value while meeting business demands.
Every effective maintenance plan should include a standardized schedule for routine upkeep and repairs. Every vehicle in a fleet is used differently, but they all have the same needs, including oil changes, tire rotations, fluid flushes, and other preventative services. Non-compliance with manufacturer-recommended maintenance schedules is one of the largest sources of profit loss and vehicle failure. Skipping one or two oil changes or tire rotations may not seem like a big deal, but it can lead to substantial avoidable costs and downtime, affecting customer satisfaction and driver productivity.
Whether to lease or purchase can even affect your maintenance budget. Many lessors offer maintenance packages, meaning that for a set fee each month, the lessor will handle all necessary maintenance for the vehicle. Most packages cover vehicle needs, such as oil changes and tire rotations, and some offer roadside assistance. However, maintenance packages do not cover all incidents—for example, if your driver were to get into an accident, your company would oversee the payments for repairs.
Regardless of your acquisition method, implementing your maintenance plan with a fleet management company (FMC) is the easiest way to get the most out of your fleet while significantly reducing maintenance costs. FMCs can provide valuable resources, including:
- Access to a nationwide network of repair facilities.
- Support from certified technicians.
- Post-warranty recovery assistance.
- Customized preventive maintenance schedules
- Data-driven vehicle lifecycle strategies
- Comprehensive budget planning
Purchasing strategies and maintenance management form the foundation of effective fleet operations. By optimizing these components, you can reduce your total cost of ownership, improve cash flow, and positively impact your bottom line.
