The leased advantages - leasing cars and trucks

Nation's Business, May, 1989 by Julie Candler

The Leased Advantages

Car and truck transportation typically is as necessary for operating a business as food is for sustaining a family. And just as a family can reduce food costs through tactics such as bulk buying, a business can take advantage of various cost-saving options in meeting its transportation needs. These options include leasing cars and trucks, using new truckload haulers, and creating combinations of both owned and rented vehicles. Moreover, the lease options extend to foreign makes, particularly those manufactured in the U.S.

The need for reducing transportation costs has never been greater. The average price of a new car in 1988 was $14,000. From 1972 to 1988, the cost of owning and running a typical U.S. car soared 220 percent. Over a period of five years, the cost of owning and operating a heavy-duty truck will likely be approximately three times its typical $80,000 purchase price. For cars as well as trucks, costs are rising for insurance, licenses, taxes, fees, interest, maintenance, repairs, and fuel.

For automobiles, depreciation costs are accelerating faster than all other costs. Since 1986, depreciation and interest have consumed more than half of every automotive dollar, according to Runzheimer International, a Rochester, Wis., firm that tracks transportation costs.

Used-car values began plunging when automakers used low interest rates and other incentives to persuade buyers to choose new instead of used cars. A $10,000 four-door Chevrolet Celebrity--the most popular fleet vehicle today--purchased in March 1986 brought only a $5,000 trade-in price in March 1989, according to National Automobile Dealers Association's Official Used Car Guide.

Leasing Gains Popularity

Today's most popular method of cuting transportation costs is leasing. The American Automotive Leasing Association predicts that by 1990, one-fourth of all new vehicles sold in the U.S. will be purchased for leasing.

"I see leasing as the only way to pay for something that loses its value as quickly as you can pay it off," says Cedric A. Rashad. He promotes leasing at Nalley Acura in Marietta, Ga.

Ironically, one of the reasons for the increased rate of depreciation is the growing use of leasing, according to Clyde Hillwig, publisher of the Automotive Market Report, a publication that sets values on used cars for the wholesale trade. "More high-mileage cars are being produced," he says, "because leasing is getting bigger and bigger. The market simply hasn't been able to absorb them."

Simplex Time Recorder Co. of Gardner, Mass., has a fleet of 1,500 leased vehicles. "In the long run, it costs less" to lease than to own, says Jerry Albertini, manager of corporate services for Simplex. "Owning can be heavily labor-intensive. Title retention, vehicle disposal, and general administrative duties require considerable time and personnel. By leasing, now we are provided with monthly reports on our fleet from the leasing company. They break down the cost per mile, total mileage, personal use, and so forth according to our specifications."

Simplex, which manufactures time-recording devices as well as fire, safety, security, and energy-management systems, leases about 1,000 passenger cars and 500 minivans from Wheels Inc., of Des Plaines, Ill. The lease agreement allows either party to terminate in writing with an advance notice. Rates and terms are renegotiated every year. Periodically, says Albertini, "We put the whole fleet out to bid to insure that Simplex's fleet program remains at the forefront of leasing practices and technologies. If the numbers and services provided are close, then it's a matter of which lessor you have the most confidence in."

Patsy Brownson manages a fleet of 2,000 cars and trucks used nationwide by the broadcast and cable operations of Cox Enterprises, an Atlanta-based newspaper, television, and communications corporation. She uses Automotive Rentals Inc., a nationwide leasing company based in Maple Shade, N.J., and Wheels Inc.

Relying on only one company "might be simpler," she admits, "but I prefer to have two so we can get the best use of both." Like other fleet managers, Brownson has found that two leasing companies' strengths can complement each other.

One lease firm, for example, may provide more helpful details and reports, or it may take more of the titling and other paperwork off a lessee's hands. Some lessors' representatives offer better advice than others on outfitting trucks to meet specific needs. One firm may pick up new vehicles from the dealer, check them over, and deliver them personally. Another firm may leave such tasks to you.

In addition, some leasing companies have stronger financial backing than others. "We are part of the Bank of New England, and that allows us to be more aggressive in marketing and pricing," says Paul Allmacher, vice president of marketing at McCullagh Leasing Inc., in Roseville, Mich.

Leasing helped Seibels, Bruce and Co. increase the dollar amount of its assets. The Columbia, S.C., firm writes property and casualty insurance. Charles Bruce, vice president for administration, says: "State insurance regulations require us to have so many dollars of surplus assets for every dollar of premium business we write. The surplus can include assets such as buildings, furniture, any tangible asset that can be sold--except automobiles. The state insurance department discounts the automobiles because of their high rate of depreciation. So about three years ago we sold our $3 million fleet of about 500 cars and light trucks used by us and subsidiary companies, mostly on the East Coast.