Should Your HVAC Business Buy or Lease Its Fleet?
Buying or Leasing HVAC Vehicles
When an HVAC company is looking to add vehicles to its fleet, you have one big decision to make — will you lease those vehicles or buy them? Leasing and buying both have benefits and drawbacks to consider. You will need to look at these, and then compare them to your company’s budget and goals to make the most informed decision.
Benefits and Drawbacks of Buying
Buying vehicles provides the primary benefit of giving you assets for your company. Because you own the vehicles, if you find yourself strapped for cash, you can sell them. Also, if you can afford to pay cash for the vehicles upfront and avoid the costs of financing, you will pay less over the life of the vehicle than if you leased.
When you own the vehicles, you are the primary decision maker. Do you want to add a crazy color or ornament to draw attention and improve your branding? You are free to do so without seeking someone else’s permission. Do you want to install a fleet management system? You can without any concern for whether or not it is allowed.
Buying a vehicle means the asset is yours, and with proper care its useful life will outlive the length of most leasing contracts. Even if you finance the vehicle, the cost of the purchase is a finite cost, rather than an infinite cost with a lease. You also can claim depreciation and deduct interest on your taxes for the vehicle.
Yet, buying has significant drawbacks too. In fact, the costs of ownership can be quite high.
When you buy, the cost of maintaining the vehicle falls on your shoulders. If the vehicle has a major problem, such as transmission failure, you will have to shoulder all of that cost. If the vehicle is totaled in a crash, you will be out its purchase price, unless your insurance coverage will reimburse you. Even so, your insurance will pay only the value of the vehicle, not its replacement cost. Many HVAC companies put a large number of miles on their vehicles quickly with service calls and repair jobs, so your vehicle’s value may be well below its replacement cost.
Finally, remember that your company’s name and brand image is tied to the vehicles your technicians drive. If they get run down, rusty or dented, it’s your reputation on the line when you own them. You can’t just trade in the vehicle for a better model. You’ll have to shoulder the cost of these repairs as well.
Benefits and Drawbacks of Leasing
When you lease vehicles for your HVAC company, all of the costs of maintenance and repair are placed on the leasing company’s shoulders. If something breaks down, you won’t have to worry about the costs of replacement or repair. Also, most lease agreements are short-term in nature or allow for the trading in of vehicles after a set time frame, which means you will get new vehicles every few years. This lessens the risk of tarnishing your company’s image with rundown vehicles.
Because you will be trading in your leased vehicles every few years, your fleet drivers will benefit from having vehicles with the latest technology in them. This can improve your driver satisfaction and also improve safety on the road, as many innovations in fleet vehicles are focused on driver safety.
Your lease agreement may come with some administrative services as well. You may find that the leased fleet vehicles come equipped with roadside assistance or insurance coverage already in place. The leasing company wants to protect its assets, so it may offer you driver safety training as well.
Leasing is also the best scenario for HVAC companies on fixed budgets. Once you have your lease agreement in place, you don’t have any surprise expenses relating to your vehicles. Leasing also brings tax deductions similar to when you buy a vehicle, including depreciation and lease payments and even debt interest, depending on the lease agreement.
However, leasing is not a perfect scenario. When you reach the end of many lease agreements, unless it’s a lease-to-own agreement, you will have no asset of which to speak. Also, many lease agreements, even if those that end with ownership, are more costly overall than buying. You will need to choose your lease agreement carefully if you choose to go this route. Make sure the terms of the agreement meet both your current budgetary restraints and your long-term goals.
Which Is Right for You?
The answer to this question will depend on your budget, goals and needs. If you could benefit from having an asset on hand and want the freedom to use your vehicles as you wish, rather than being forced within the constraints of a lease agreement, then buying is for you. If your budget is tighter and you would prefer to let someone else handle the additional costs of maintaining and caring for the vehicles, then leasing is right for you. Make a wise decision, and enjoy the comfort and convenience of a new fleet of vehicles to help you get to your service calls.
Robert Hall is the President of Track Your Truck headquartered in New Lenox, IL. Track Your Truck is the the industry leading GPS vehicle tracking provider for small to medium-sized HVAC companies.