Lease or purchase comes down to more than cost
Rent or own a house? Lease or purchase a vehicle? Since the advent of landlords, and lessors, these questions synonymously became intertwined for the usually confused consumer.
Since the ‘50s, these two types of transactions became widely polarized. With home ownership, you had a financial instrument that predictably appreciated over time. On the other hand, a vehicle would lose 20 percent of its value the day it left the dealership.
Additionally, the pendulum of the U.S. government for the last 30+ years rewarded home ownership, but treated the renter as a transient member of society. At the same time, to increase domestic automobile production, the government realized it needed to incentivize Americans to replace their vehicles more often.
That was the time the corporate leasing model resonated in the boardroom. However, the opinions were still very mixed. Up to that point, the knowledge of leasing was strictly what was offered at retail – an onerous and restrictive closed-end lease that had rigid term, mileage and condition clauses.
An open-end TRAC lease had been around for dozens of years, but quite frankly, it was more difficult to sell. A concept was being sold, and not a rate. Before Reagan took office, interest rates were well above 20 percent. And unsurprisingly, the concept of an open-end lease with a floating interest rate was enticing to Fortune 100 companies, which provided credibility to all those that followed.
Today, interest rates are slowly climbing from historical lows, and the government is once again a catalyst in the lease versus ownership debate. However, from a fleet perspective, the analytics very often result in a cost-neutral scenario. And, of course, you should validate this hypothesis with your tax accountant before making any decisions.
If you discover that leasing and purchasing are equally cost effective, you then need to evaluate all the other factors that enable your organization to perform at maximum efficiency.