I’m in the market for a new vehicle. I’ve always been of the belief that paying cash kept my expenses down because I don’t pay any interest (even though it’s deductible as a business expense) and I keep my vehicles forever.
After doing a cost analysis on a vehicle I paid cash for close to 20 years ago, I realized that with the original cost of the vehicle and all the money I spent on maintenance, I could have been leasing all this time for the same money, and gotten a brand new vehicle every three years!
I also believed that buying used vehicles was the way to go because of the depreciation on new vehicles. Depreciation is a waste of money, but at least it’s a tax deduction.
Repairs on an old, fully depreciated vehicle are also a waste of money. Repairs start to get expensive over time, and they’re paid for out of your own pocket. The average vehicle with 100,000 on it miles will cost you $800-$1,200 per year in additional maintenance over a new vehicle under warranty. That covers a few monthly payments for the first year or so as it is.
So now I’m into leasing. Here’s why.
Cash flow:
Paying cash for a vehicle is not an option for most, but even if it is, it ties up funds on something that only loses value over time that could have been invested in something that can start making you money or saving you money instead of costing you money.
Purchasing a vehicle through a loan usually results in higher monthly payments than a lease, tying up even more valuable cash.
Purchasing a vehicle through a loan usually results in higher monthly payments than a lease, tying up even more valuable cash.
Leasing does not necessarily require up-front cash and there are a number of financing options available. This frees up your cash that it can be invested in other opportunities that can produce a higher return on investment for your business.
As I mentioned in my intro, when you lease, you can get a brand new vehicle as often as every three years.
Better Gas Mileage:
A vehicle getting an average of 15 miles per gallon (mpg) that is driven 35,000 miles per year, at an average price of $4 per gallon of gasoline, will cost $9,333 in fuel per year.
A vehicle getting an average of 20 mpg driven the same number of miles will cost only $7,000 per year in fuel. That’s a savings of $2,333 per year, and covers a lot of monthly payments. One way of looking at it is that the fuel savings alone on three new vehicles covers the lease payments on a fourth vehicle
A vehicle getting an average of 15 miles per gallon (mpg) that is driven 35,000 miles per year, at an average price of $4 per gallon of gasoline, will cost $9,333 in fuel per year. A vehicle getting an average of 20 mpg driven the same number of miles will cost only $7,000 per year in fuel
Reduced Maintenance and Repair Costs:
I’ll caution you against buying used work trucks. Used work trucks have likely seen some hard use, which means your maintenance costs will be high, and every day a service or installation vehicles sits in the repair shop, it’s not out there generating an income for you.
Combine the $2,333 per year in fuel savings with up to $1,200 per year in repair bills that you won’t have, and every new vehicle has the potential of saving you upwards of $3,533 per year, or close to $300 per month, on the average. Plus, your techs are in nice new trucks.
Employee Retention:
Everyone loves it when they’re issued a new truck. Don’t under-estimate the value of providing your techs with nice trucks. I know technicians that have stayed with a company because they love the truck they drive.
By the way, I know of one company that, after a truck is fully depreciated after five years, if the service technician who was originally assigned to that truck is still with the company, the company will sell it to the tech for $1. This policy goes a long way toward employees taking better care of their vehicles.
Outfitting the Truck for Your Needs:
When you purchase a truck, you’ve got to install the shelving, etcetera, yourself. Leasing companies will often modify the truck for you and some will get it wrapped for you.
Poor Credit? No Problem!
Okay, I just advocated leasing new vehicles. Sometimes that’s not an option.
If you really need a truck, and have poor credit, you can still acquire used vehicles with little money down and affordable monthly payments.
Nearly every town has these small dealerships that specialize in selling used vehicles to the “credit challenged.” They usually have a large sign out front that says “Buy Here, Pay Here.” These people will finance just about anyone; frequently without finance charges.
There is nothing wrong with buying a vehicle from these people. I’ve purchased two vehicles from places like this myself and a good friend of mine who is a contractor has bought several from them. I just helped a friend with very little cash and a poor credit rating acquire a vehicle in this manner this week.
Charlie Greer is in the HVAC Hall of Fame, has been voted the “HVAC Consultant of the Year” and the “Top HVAC Industry Sales Trainer.” For information on Charlie’s audio/video/or Zoom sales training, call 1-800-963-HVAC (4822), or go to www.hvacprofitboosters.com. Email your comments or questions about this column or HVAC sales to [email protected].