Fleet Financing Q&A

Your business fleet is . . . well, let's just skip all the adjectives and agree that you wouldn't be in business without it. But, as important as your vehicles are to the success of your business, their care, maintenance, and management pose significant challenges.

A fleet of vehicles can hold the keys to trimming expenses and improving cash flow without sacrificing vehicle quality or performance.  But, the decision whether to own a fleet of vehicles or lease vehicles through a professional fleet management company can vary depending on various business circumstances, goals and objectives.

Steve Usselmann is senior vice president, Enterprise Fleet Management, a full-service fleet management company for businesses with medium-size fleets. He recently provided us with some answers to common questions surrounding outsourcing fleet management. Read on, and decide what might work for your firm.

If my firm has cash that we can spend on vehicles, why would we lease and be charged an interest rate?
By acquiring vehicles through a professional fleet management company, a separate line of credit may be established for your business. This can optimize cash flow and preserve your bank line of credit or cash surplus for other opportunities, such as operations, expansion, additional personnel, investments or simply a “rainy day”.  A fleet management company can help with the financial math to assess this decision, which is dependent on each business’ situation and overall cost of capital.  In addition, while interest rates for leasing vehicles are generally competitive for various financing options, a fleet management company may allow for flexible leasing arrangements that can lessen the amount of debt on a business’ balance sheet as compared to traditional loans. This can reduce financial risk, improve the cost of capital and increase the value of the business. 

What size fleet is required to get the most benefit from a fleet management company?
Every business situation is unique and there can be many variables and considerations, including the extent to which the business is committed to better managing the full range of issues, from acquiring and disposing of vehicles to managing maintenance appointments and invoices, insurance and vehicle registration and reporting. Generally, outsourcing to a professional fleet management company requires a fleet size of 15 vehicles or more to improve overall operational efficiencies and effectively lower the total cost of ownership.

How can a fleet management company help with various Department of Transportation (DOT) safety requirements, licensing inspections, etc.?
Registering vehicles can be a complicated and exasperating process, especially for companies whose drivers are scattered across multiple states and counties. Not only do different states have different names for their regulatory agencies, specific requirements and terminology also may vary state-by-state or county-by-county for emissions, license plates, taxes and insurance. Because there may never be a uniform way to register vehicles across the nation, working with a fleet management company that has the knowledge and expertise to handle vehicle licenses and titles for each state can make the process go much more smoothly.  In addition to allowing a firm to avoid the time-consuming, labor-intensive process of renewing vehicle registrations, turning over the responsibility to a fleet management company frees up drivers, relieving them from spending time standing in line at the department of motor vehicles when they could be servicing customers.

What are the disadvantages of holding onto older vehicles that are already paid for versus replacing them?
Holding onto vehicles with high mileage can mean higher maintenance and fuel costs, frequent breakdowns and expired warranties, which may actually prove more expensive in terms of opportunity costs due to missed appointments and lost productivity. A fleet management company can provide a replacement strategy that will ensure vehicles are replaced at regular intervals to increase the efficiency of the fleet for optimal performance and resale value.  By monitoring factors such as the time of year, mileage, vehicle type, age and maintenance history, the guesswork is eliminated.  A cycling program looks at things like future trends, the current used vehicle market, warranties, mileage and the potential wear and tear a business will inflict on each vehicle.

Why should I outsource fleet management when I can do it myself?
Just as you rely on an accounting or tax professional to handle business functions such as tax planning or tax compliance, you may need a professional with automotive industry expertise to manage company vehicles. A fleet management company can be a full-service resource for ensuring that every dollar spent to buy, operate and replace vehicles over a period of time results in the best economic solution for their customers.

Steve Usselmann is senior vice president, Enterprise Fleet Management, a full-service fleet management company for businesses with medium-size fleets. He can be reached at 314/512-2332 or [email protected].  
Enterprise Fleet Management, a full-service fleet management company for businesses with mid-size fleets, is an affiliate of Enterprise Holdings Inc.  For more information, visit the company’s Web site at www.efleets.com or call toll free 1-877-23-FLEET.