Leasing vs Company Ownership |  | Open vs Closed End Leasing

Leasing vs Driver Reimbursement

Leasing

Driver Reimbursement

Leasing is an efficient and economical method of vehicle acquisition and fleet administration for companies who need to conserve capital for their primary business. At Velcor, leasing keeps credit lines open, improves cash flow, and with the right lessor, provides the full services of an experienced leasing and management organization. Driver reimbursement is the most costly, least efficient and inequitable way to obtain business transportation. It offers the least amount of control by the employer over the operating costs, safety, the model, value, condition or style of an employee's vehicle. Moreover, reimbursement requires costly record keeping to substantiate and process driver claims.
ADVANTAGES ADVANTAGES

Financial

  • No large cash outlays or downpayments
  • Frees up funds for profit making investments
  • Keep credit lines open for company growth
  • Vehicle financing covers 100% of cost
  • Off balance sheet financing of vehicles
  • Budgetable expense predictable monthly cash flow
  • Capital outlay is only for portion of vehicle used
  • Choice of financing options and terms
  • Availability of multiple financing sources
  • One time credit review
  • No need to reestablish credit
  • No upfront sales tax where use/rental tax applies
  • Use tax paid in future dollars over term of lease
  • Vehicles obtained at predetermined prices
  • Lower costs through lessor's volume purchasing

Administrative

  • No separate purchasing and selling organization necessary
  • One source supplier for vehicles and maintenance
  • Full range of lease types and terms
  • Unrestricted choice of makes and models
  • Expertise in vehicle selection
  • Wide variety of used car disposal methods
  • Lessor handles record keeping and administration:
    • Accounting and finance
    • License, title, insurance compliance
    • Manufacturer recall campaigns
    • Federal, state, local tax administration
  • Availability of other lessor services:
    • Maintenance and repair costs control
    • Extensive national account network
    • Rental/pool car programs
    • Emergency replacements
    • Sophisticated data analysis and reports
    • Universal fuel cards
  • 100% pass through of factory fleet incentives
  • Consolidated monthly billing
  • Virtually no out-of-pocket driver expenses
  • Control over corporate image
  • Customized, flexible programs for every fleet

Financial

  • No company cash outlay
  • No balance sheet effect
  • Use of future dollars

Administrative

  • Purchasing, maintenance and selling are done by employee
  • No tracking of drivers personal use of company vehicle
  • No vehicle cost related to terminated/transferred employees
Keys
DISADVANTAGES DISADVANTAGES
  • Fleet locked in for a period of time
  • Not advisable under certain tax situations

Financial

  • Reimbursement puts financial pressure on employee:
    • Driver must buy vehicle at retail price
    • Driver must borrow at higher individual rates
    • 100% sales tax impact on purchase price
  • Driver pays retail price for maintenance, repairs, parts, tires, etc
  • Business usage increases drivers insurance premium
  • Drivers generally not aware of most economical vehicle, resulting in higher fuel/operating costs
  • Personal vehicle tends to be kept longer, thus increasing operating costs and down time
  • Tax reform has reduced tax benefits of ownership:
    • Depreciation benefits have been curtailed
    • No deduction for employees business expense unless they exceed 2% of adjusted gross income
    • No state sales tax deduction on new car

Administrative

  • Burden of handling multiple expense and mileage reports
  • No control over age, type, and image of employees vehicles
  • No assurance of safety/reliability of employee owned cars
  • Employer must monitor insurance coverage and see that company is named the additional insured.
  • Utility requirements of vehicle likely to be inadequate
  • Research and tracking required to ensure fair compensation for different mileage's, territories, and geographic locations.
  • Loss of recruitment advantage/employee retention due to absence of a company car
  • Less control over downtime when company does not oversee maintenance
  • Reimbursement programs are often hard to explain to drivers; are perceived as unfair and cause dissatisfaction