Leasing Equipment Can Extend Tight Budgets
With many public sector fleet budgets straining in difficult economic times, leasing construction equipment can provide a financially viable option to purchasing for short-term needs.
January 2010, Government Fleet - Feature
The cost of construction equipment can strain a budget in the best of times, so how are government fleets coping now, in these not-so-great times?
Many government fleets have seen acquisition budgets cut sharply in this economy, and some even have had equipment procurement spending eliminated entirely, at least for the time being, as local governments struggle to manage with dwindling revenues.
Such is the case for Harford County in Maryland.
"We have actually found ourselves in a position where we're not buying any equipment this year," said Warren Patrick, the County's fleet manager.
Leasing Offers a Short-Term Option
However, obstacles as severe as those Patrick faces needn't halt construction projects. In such situations, leasing could be a pragmatic move, especially for a short period — perhaps for the duration of one or two projects. The overall expense of leasing for a limited time is substantially less than the outright purchase of equipment, of course, and once the work is done and the equipment returned, no continuing cost remains.
Harford entered into an agreement with Hertz Equipment Rental to secure equipment the County lacks for particular projects.
"As of this moment, we have not had an emergency" requiring the County to make use of the lease, Patrick said in December, though his fleet operations has turned to Hertz in the past. Patrick recalled a dozer was needed for the County landfill for a short period of time. The County had sold its own equipment that would have served the purpose because the equipment had been used only sporadically. Hertz stepped in and delivered the needed piece.
"That filled the bill," Patrick said.
Dealers Provide Another Source
Dealers are another potential source of leased construction equipment in this economic downturn. Many dealers are holding repossessed equipment, Patrick pointed out.
Standard Equipment Co., a John Deere dealer with a half-dozen branches in Maryland and Delaware, has repossessed equipment on hand, said David Riley, a territory manager. "The whole industry really does," he said.
John Deere's leasing program for government fleets includes a provision allowing return of leased equipment if the user submits a letter stating funding for a construction project has been stopped, Riley said. John Deere will accept the returned equipment under such circumstances and terminate the lease, Riley explained.
The returned equipment is remarketed, he added, leased to another government fleet as equipment with hours on it at a rate reflecting its used status.
Leasing is an alternative for those times "when you can't just buy the equipment," Riley said. "You're not spending $90,000 right away. You're only spending $3,200 a month. Six months down the line, if you can't use it any more, it comes back, and you only spent $19,000."
Harford's Patrick advised negotiating lease terms with dealers long before equipment may be required. He said he had been approached by equipment dealers seeking to lease used equipment.
"They came to me, and they gave me some pricing and some proposals," Patrick said.
"We have not had a serious demand for those pieces of equipment yet," Patrick said, "but like a good Boy Scout, we've lined up our ducks, should we have a need for them. The time to look for them and to negotiate for them is not when you need them."