There are different opinions when it comes to financing vehicle fleets for logistics companies. Some prefer to purchase vans, forklift trucks and cranes. Others prefer to rent the vehicles. A third option is vehicle leasing.
None of the approaches is fundamentally better or smarter. While buying is the optimal solution for some companies, others may benefit more from renting or leasing. Here we explain the advantages and disadvantages of the three methods and what is ultimately important when making a decision.
ADVANTAGES AND DISADVANTAGES OF PURCHASED VEHICLES
One of the advantages of buying a commercial vehicle is obvious: anyone who buys a van can regard it as their own property. They can do whatever they want with it without being restricted by any restrictions.
Purchased vehicles are not subject to any restrictions in terms of mileage or wear and tear. In addition, the buyer can decide for themselves how long they want to keep the means of transportation and when and for what price they want to sell them on. As the owner, the company also benefits from tax advantages as part of the depreciation of the vehicles.
The disadvantage of this option is that the company has to pay for maintenance and servicing, vehicle taxes and car insurance itself and has to keep an eye on the associated formalities, deadlines and dates.
In addition, the depreciation should not be underestimated: Depending on the frequency of use and the number of kilometers driven, the resale value can be significantly lower than the purchase price.
The acquisition costs are naturally higher when buying than when renting. New vehicles in particular are beyond the financial means of many companies. On the other hand, they offer the advantage that buyers can expect good quality and a long service life.
Anyone buying used vehicles should make absolutely sure that they meet the latest technical and safety standards. Older vehicles not only carry a higher risk of breakdowns, they may also not meet the necessary emissions standards to be allowed to enter environmental zones.
The pros and cons of buying:
- Ownership of the vehicle
- Manufacturer’s warranty
- Vehicle can be used or sold as desired
- tax advantages
- Tying up capital
- Loss of value
- Additional costs due to maintenance, insurance and taxes
ADVANTAGES AND DISADVANTAGES OF RENTED VEHICLES
Basically, renting is similar to leasing, except that there are far fewer obligations with regard to maintenance. Insurance and maintenance work are the responsibility of the lessor. Payment of the rental costs covers all normal wear and tear on the vehicle.
Whether maintenance, repairs, liability insurance or taxes – the tenant does not have to worry about anything. There is also great flexibility in terms of the lease term. If a van or forklift truck is no longer needed, the company can easily return the vehicle.
If, on the other hand, the company needs more vehicles or one with a higher capacity, the fleet can be increased at relatively low cost. If a van breaks down, the rental company usually provides a replacement within a very short time.
In addition, reputable rental companies are keen to provide their customers with vehicles of the best quality and state-of-the-art technology. The renter does not need to worry about the safety of the rental vehicles. Longevity and resale value are not important.
One possible disadvantage of rented vehicles is the lack of tax depreciation benefits. These can only be claimed by the vehicle owner, i.e. the rental company.
The pros and cons of renting:
- Flexible terms, short-term termination options
- daily billing
- Maintenance, repairs, insurance and taxes are the responsibility of the landlord
- Mobility guarantee
- No administrative effort
- No tax depreciation benefit
- no ownership and right of co-determination of the vehicle
- generally more expensive than leasing
- No individual vehicle equipment
ADVANTAGES AND DISADVANTAGES OF LEASED VEHICLES
With leasing, the entrepreneur uses new or used commercial vehicles for an agreed period of time and pays a leasing rate. The difference between leasing and renting is that the lessee has all the rights, obligations and risks that would otherwise lie with the lessor. If a vehicle is damaged or breaks down, the user is liable.
As new commercial vehicles are generally leased, the costs for maintenance and repairs are usually limited. There are also contract variants in which repairs, preventive maintenance work, support and breakdown assistance are already covered by the leasing installments.
The expense of procuring the vehicle is eliminated, as is the subsequent disposal. In some cases, the customer can purchase the vehicle at the end of the leasing contract.
Leasing offers tax advantages because the vehicles remain the property of the leasing provider and do not appear on the corporate balance sheet of the leasing company. This has a positive effect on the credit line at the bank and on liquidity. This form of temporary leasing is therefore particularly interesting for logistics companies with little equity.
The pros and cons of leasing:
- Conservation of equity/liquidity
- Leasing installments are operating expenses
- Fleet always up to date
- No residual value risk for mileage contracts
- Deposit required
- Restrictions on use
- Problems with the return
- Back payments
BUYING, RENTING OR LEASING: NOT JUST A QUESTION OF ACQUISITION COSTS
As every company has different requirements, it is not possible to make a blanket statement regarding the best vehicle procurement option. Under no circumstances should only the acquisition costs be taken into account when making a decision.
Rather, it is also important to
- Repairs,
- Maintenance work,
- Insurances,
- Vehicle taxes
and other expenses associated with the vehicle fleet. Ultimately, it depends on the individual financial possibilities of the company, the exact type of use and the utilization of the respective vehicle.
The decision to purchase a vehicle can have a long-term impact on a company. Even if the depreciation of commercial vehicles is less drastic than that of passenger cars during the first year, it still has an impact on operating costs. The high investment means that a large proportion of the company’s capital is tied up over a long period of time. This makes it difficult to change the company’s strategic direction at short notice.
At the same time, future developments in the logistics sector are difficult to predict as they depend on the constantly changing general economic situation. In addition, the older the vehicle, the higher the risk of repairs and breakdowns.
When leasing, the company commits itself in the same way as when buying. The special payment due at the start of the contract and the leasing installments reduce the company’s liquidity in the long term. Theoretically, it is possible to terminate the contract early, but at unfavorable conditions. To avoid unpleasant surprises, it is advisable to study the individual offers carefully and read the small print before signing the contract.
Companies that rent out their vehicle fleet are thus relieved of some cost factors. As repairs, maintenance, insurance and inspections are already included in the rental, the vehicle fleet can be expanded flexibly and at short notice by renting.
It is also possible to select the exact vehicles required for the current transportation tasks and decide on a suitable rental period. Short-term rental for a few days is just as possible as long-term rental for weeks, months or even years.
When is buying the more sensible option?
Buying new vehicles is the best option , especially if you have special equipment requirements. It is generally difficult to find rental or leasing offers for vans with special conversions.
Financially weaker companies that would like to have something of their own can look around on the used vehicle market. However, commercial vehicles that are only a few years old are often still traded at quite high prices due to the high demand. Again, economic dips in the logistics sector can lead to a rapid fall in prices.
If you keep a close eye on the market, you may be lucky enough to expand your fleet at a reasonable price. However, it should be borne in mind that the probability of repairs and breakdowns increases with the age of the vehicle and the frequency of use. Daily use and a long service life are rarely compatible with older used vehicles.
WHEN IS IT BETTER TO RENT VEHICLES?
While buying is more profitable for long-term and frequent use, renting is a good option if vehicles are only needed once or for a short period of time. Another advantage of a rental fleet is that the number of vehicles can be flexibly adjusted if the number of orders increases or decreases.
Of course, it is also possible to expand a vehicle fleet at short notice by making a purchase. However, the rush usually results in higher costs because there is no time to wait for favorable offers. Selling vehicles that are no longer needed can also prove to be a cost trap due to the loss in value.
Short-term rental is particularly suitable when vans or forklift trucks are not available for one or more days due to an inspection or repair, or when an additional vehicle is needed unexpectedly. Long-term rental is recommended, for example, if the duration of an ongoing order is difficult to estimateor if it could be terminated. In this case, rental vehicles can be returned at any time.
In the past, leasing was more common than long-term rental. However, it is hardly possible to withdraw from a leasing contract without having to pay high compensation. If a company realizes that a leased vehicle is not so suitable, there is no possibility of replacing it for several years.
A rental contract is much more flexible in this respect. In addition, most rental companies offer the integration of a clause that provides the renter with a mobility guarantee. A vehicle breakdown due to a breakdown can therefore be easily compensated for. Leasing would incur additional costs for a bridging vehicle or an important element of the fleet would be missing for days or weeks.
WHEN IS LEASING WORTHWHILE?
Leasing can make sense if the useful life can be realistically defined and the scope of use can be well estimated. You can choose between mileage and residual value leasing. With the former, a mileage is contractually stipulated which the vehicle may not exceed during the term. With the latter, a certain residual value is fixed at the beginning, which the vehicle should still have at the end of the leasing period.
Compared to long-term rental, leasing has the disadvantages that a down payment is required and the term is less flexible. However, due to the higher monthly charge, long-term rental only offers a financial advantage for periods of one year or less. Leasing is usually the more cost-effective option for a longer period of use.
CONCLUSION: RENTING OFFERS THE GREATEST FLEXIBILITY
Vehicle procurement always starts with a precise needs analysis. Which vehicles are needed for what purpose and for how long? Then there is the question of the probable utilization of the individual vehicles.
The answers provide an initial indication of the appropriate form of financing for the company fleet. In addition, the monetary situation, financing targets and relevant tax regulations play an important role in the decision-making process.
Rental is usually the best option for temporary projects as it offers the greatest flexibility. For example, very few logistics companies need cranes frequently enough to make purchasing or leasing worthwhile. Renting can also be a good way of testing different vehicle models for their suitability for the planned area of application before purchasing.
Incidentally, companies with their own vehicle fleet do not necessarily have to opt for a single financing option. For example, it is perfectly possible to lease vans, buy forklift trucks and rent cranes.
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