When it comes to purchasing units for your fleet, there is the ongoing question of whether or not to lease or buy. The answer to that question depends on many variables, which can make it difficult to come to a decision that will be the right one for the long term. Beverage World caught up with Dr. Tony Vercillo, president of IFMC, Inc. (International Fleet Management Consultants and International Focused Marketing Corp.) following the IFDA’s (International Foodservice Distributors Association) 2012 Distribution Solutions Conference held in Las Vegas in late October, where he spoke on the benefits of owning vs. leasing. Here’s are some quick tips from Vercillo that can help making that important decision a little easier.
Beverage World: What would you say are the three most important things to consider before leasing?
Tony Vercillo: 1. Your internal weighted cost of capital (money). How much do you value a dollar? 2. Whether or not off-balance sheet financing is attractive to your firm; 3. The Market Condition for Resale Values, which typically follows the “interest” curve.
BW: What would you say are the three most important things to consider before buying?
Vercillo: 1. Your internal cost of funds; 2. Whether or not you could use the money for a higher ROI project; 3. Whether or not you want to be in the used truck business (when it is time to dispose an asset).
BW: What are the most common mistakes companies make when leasing and/or buying?
Vercillo: When leasing common mistakes are assuming they can “throw the problem over the wall....” and thinking that leasing is a panacea to all distribution ills; not paying attention to the cultural FIT of the leasing firm; not visiting/interviewing the local leasing company, maintenance facility and manager to visually check out the operation; not marrying up the proximity of the leasing company locations to yours to determine that they have coverage within 20 miles of your facility and not ferreting out the leasing company hours of operation to ensure they are consistent with your needs.
With ownership, common mistakes are assuming you buy the vehicle cheaper than the lease company (hogwash!); specing the vehicles solely to appease the drivers; not paying attention to sustainability (go green); not understanding the cost of funds and running the fleet garage like it’s an auto business rather than a Jiffy-Lube.
BW: What should fleet operators/managers know about the leasing market today?
Vercillo: They should know that it is highly competitive; five to six companies are competing for a shrinking pie. It is only as good as your local sales rep! Eighty percent of all leasing companies behave the same; it’s all about who provides the best local service. And leasing companies are leery of residual values so are being very conservative to protect their downside risk when rating a lease deal.