The Strategic Sourceror

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Fleet Management: Open End Leases
Thursday, March 27, 2008
Now we’re getting into the nuts and bolts. I feel compelled to provide a small disclaimer here. This is not going to be Chris Farley’s greatest hits. Also, this isn’t going to be a 400-level college class on fleet management. This is the basics to get you on your way. If you’re reading this, I’m assuming your [expletive] boss dropped this on your lap and now you have no choice. I will treat this as such, you unfortunate soul. I’ll try not to delve into much strategy here since there’s a lot to digest when it comes to these types of leases. In my next post, I will get into strategy a bit more and discuss when open-ended leases are appropriate.

If you have a corporate fleet, odds are, you have open-ended leases. They are by far the most common lease types in the corporate world. The most basic thing to know is open-ended leases generally result in you owning the vehicle. In a closed-ended lease, like most personal use leases, you relinquish the vehicle at the end of term, usually 36 months. You can buy it at that point, but are not under obligation to do so. In most open-ended situations, you’ve been paying for the vehicle for so long it becomes a de facto purchase on your part and you own the equity in the vehicle.

The second most basic thing to know about open-ended leases is you are not bound to mileage restrictions. This is what makes open-enders attractive to corporate fleet administrators; they know they won’t be whacked with mileage overage charges. The unfortunate thing is if you put some time into analyzing usage patterns, with most vehicles, you can decipher how many miles per year are required and can possibly get a better price on a closed-end lease, but few people have the time and/or insight to do this.

I can’t harp enough on the importance of considering resale price when going with an open-ended lease. As mentioned earlier (and will be mentioned many times hence) you likely own the vehicle when you sell it. Sell it for a good price! Consider this when going with an open-ender. Many people are short-sighted and only look at the monthly cost. Once you own the vehicle, paying small management fees to the fleet manager seems like a bargain, but in reality, you’re getting nickel-and-dimed on gas-mileage, maintenance, repairs, etc.

These are the basics. Next time we meet, I’ll discuss basic strategy to be smart about open-ended leases.

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posted by Jazzy Sourcer @ 10:09 AM  
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