Equipment asset awareness has never been more critical, especially in today’s rapidly changing economy. Reviewing contract renewals and equipment replacement cycles is also difficult for many companies, as one study shows 91 percent of companies do not have a dashboard that tracks renewal status. Fleet Advantage is again recognizing Asset Management Awareness Month, which urges businesses and organizations to learn how improved asset management practices can contribute to the overall mission and revenue goals of their organization.

Important to Scrutinize Equipment Lease Contracts

With flexibility at the forefront of the business strategy of operating a fleet, scrutinizing every detail of a fleet’s lease structure and the contract can mean the difference of millions gained or lost toward their bottom line. To help fleet executives maximize their asset management strategies, Fleet Advantage provides a full suite of data analytics to determine the best finance option for their operation.

These tools are needed to help fleets make better decisions because finance costs are a significant calculation in any equipment acquisition. The most effective process to reduce truck costs and finance costs is to have competitive finance options. For example, competitive options can be achieved when full-service lease agreements are unbundled, allowing the freedom and flexibility to shop for the most competitive options. To determine if unbundling is a good fit for an operation, a UBL/FSL Comparative Cost Analysis should be utilized. In the example below, the calculation captures significant savings in a UBL compared to finance/monthly costs against an FSL ($31,900 per vehicle), even for daycab trucks running roughly 55,000 miles per year. The CPI increases are based on actual history (4.0 percent Cap). These amounts will differ by cab type, application, utilization, and OEM, but savings versus a traditional FSL will likely be achieved.

In addition to a lease type analysis, various metrics should be deployed, such as the lease versus purchase analysis, lease versus loan analysis, sales tax analysis, etc.

What’s The Next Step?

Every truck has a different in-service start date and keeping track of all units is cumbersome but imperative. Therefore, in addition to monitoring Total Cost of Ownership (TCO) expenses, organizations must analyze their complete truck life cycle data to determine when trucks are nearing the right time for a replacement starting at 18 to 20 months before contract expiration.

It is also important not to get locked into a financial structure that does not match the usage of the asset, limiting flexibility to get out when the market changes or when it’s time to pivot.

When reviewing contracts and various in-service dates, important checklist items include:

•  monitoring lease expirations by truck;
•  checking if there is flexibility to exit the lease in 90 days;
•  determining what type of extension provisions are in place;
•  checking if the fleet is locked in a contract with limited options; and
•  evaluating if the fleet can produce a true Cost Per Mile (CPM).

Regardless of what type of lease or financing is being utilized, fleets must determine what is included and conduct a line-by-line comparison for each cost item including: lease payment, warranty, maintenance and repair cost (whether in-house or outsourced), licensing, tires and etc.

Around six to nine months (considering current build slot availability) ahead of the truck’s optimum replacement window is the right time for fleets to determine whether they should plan for a new acquisition type. This should be a part of an organization’s one-, two-, and three-year procurement strategy and holistic asset management approach, which evaluates factors such as corporate structure, balance sheet, interest rates, residual values, tax benefits, depreciation, etc., in making decisions.

“With all the changes in the economy, it’s important for corporate transportation fleets to utilize every possible resource to ensure proper management of their asset portfolios,” said John Rickette, CTP, CLFP, Vice President of Portfolio and Manager of the Transaction Management Team for Fleet Advantage. “Today’s fleets continue to seek advanced data-driven tools that can help offer insight into their decision making, which is why it’s critical to work with a holistic asset management partner that can help maximize efficiency and reduce cost at every opportunity.”