Procurement

Leasing: A Budget & Maintenance Solution

May 2017, Government Fleet - Cover Story

by Thi Dao - Also by this author

Photo courtesy of Enterprise
Photo courtesy of Enterprise

Just two years ago, St. Lawrence County, N.Y., faced an aging fleet, with vehicles as old as MY-1993. The Great Recession had forced the city to defer its vehicle purchases. Use of salt on roadways caused vehicle corrosion, and maintenance costs rose — as did fleet technician overtime, according to Don Chambers, the county’s superintendent of highways.

Like many public agencies around the country with aging fleets, the county didn’t have the funding needed to replace all its vehicles due for replacement.

In 2016, it came up with a solution: leasing. Leasing allowed the county to purchase more vehicles up front, improve the fuel efficiency of its vehicles, and slash maintenance costs.

Slashing Fuel & Maintenance Costs

“Just keep the fleet in motion — that was one of the contributing factors in the decision [to lease],” Chambers said.

In 2016, the county leased 23 vehicles for the Highway Department. These included sedans, half-ton pickup trucks, and medium-duty trucks and replaced the oldest vehicles in the fleet. The open-ended leases with Enterprise — primarily five-year contracts — allow the county to get back money if the cars resell for higher than the estimated residual value.

Staff has already seen the benefits of its newer vehicles. The 23 old vehicles cost the county $30,000 per year to maintain — the leased vehicles cost about $2,000. The old vehicles consumed $50,000 in fuel per year, while the newer vehicles consumed less than $25,000 in fuel (Fuel prices decreased by 13% during this time, which contributed to reduced fuel costs).

In-house fleet technicians maintain the vehicles. Because maintenance and repair work decreases with a newer fleet, technicians may become concerned that their jobs are going away. This wasn’t a problem at St. Lawrence County.

“Due to some of the staff time that has been freed up, we’ve taken on repair work for other governments and another division of the county that’s in an enterprise fund,” Chambers said.

The additional work for outside agencies brought in revenue, even as the fleet reduced technician overtime hours.

For 2017, the county has leased 24 more vehicles, mostly sedans for the Department of Social Services (DSS). DSS received funding from the state to upgrade its vehicles, allowing Chambers to shift some of the department’s cars that are just over five years old to other departments with older units, he said.
Chambers admits that purchasing vehicles may be cheaper than leasing. But for the situation the county found itself in, getting old cars cycled out of the fleet faster, reducing maintenance costs, and taking advantage of grant opportunities made leasing a smarter choice.

He sees the county going toward leasing its entire light-duty fleet of 152 vehicles.

“The fact that they’re driving newer, safer vehicles that do not have rot holes through door panels, or what have you, I think it’s good for morale, and good for the employees,” Chambers said.

In 2016, St. Lawrence County, N.Y., leased 23 vehicles (sedans and light- and medium-duty trucks), replacing its oldest units. Leasing allowed the county to replace more units at one time than purchasing and reduced the cost of operating an aged fleet.
In 2016, St. Lawrence County, N.Y., leased 23 vehicles (sedans and light- and medium-duty trucks), replacing its oldest units. Leasing allowed the county to replace more units at one time than purchasing and reduced the cost of operating an aged fleet.

Balancing the Tech-to-Equipment Ratio

While St. Lawrence County chose to keep maintenance work in-house, some fleets choose to outsource maintenance for leased vehicles in order to reduce technician workload.

For a large fleet in the Midwest, leasing reduced its maintenance needs, allowing it to make significant operational improvements. In 2011, the fleet leased more than 200 of its vehicles, nearly a quarter of its light-duty non-emergency fleet. The contract included maintenance, and this, combined with other measures that reduced the fleet size, allowed the city to consolidate its shops and close a light-duty fleet facility. Fleet management reallocated its technicians to other repair facilities.

For the City of Norfolk, Va., a new leasing contract allowed the city to lower vehicle costs and manage its ­technician-to-equipment ratio.

Norfolk previously had a closed-ended leasing contract for 22 vehicles. However, Facundo Tassara, fleet manager, found that the city continually lost out because its drivers weren’t putting in enough miles on the vehicles before they were returned every three years. Its new 60-month open-ended lease allows it to potentially get some equity back when vehicles are remarketed.

But one of the biggest benefits from leasing came from outsourcing maintenance on the 22 light-duty vehicles.

“Our tech-to-equipment ratio sucks. We’re outnumbered,” Tassara said. “We’re trying to do the best we can.”

While taking away preventive maintenance (PM) of 22 newer vehicles from a fleet of 2,038 units doesn’t seem like much, Tassara said the light-duty shop appreciates the reduced workload, which was a better option than hiring more technicians.

Leasing has helped the city reduce capital outlay. With the improved economy, more funding is now becoming available. But with a vehicle replacement backlog worth $28 million, it’s probable that most vehicles won’t be immediately replaced.

The cost to purchase the 22 vehicles (20 hybrid cars, one minivan, and one passenger van) would have been $618,495, plus maintenance. The city pays just under $600,000 across five years for leasing and maintenance. Tassara believes the limited upfront capital and not having to hire more technicians, or order parts and supplies for them, makes up for the cost.

Another benefit he sees is being able to green the fleet faster — more than 90% of the leased vehicles are hybrids, reducing fleet fuel consumption.

Tassara hopes to expand leasing, including outsourcing maintenance on the leased cars, to reach a workload balance.

“We are still outnumbered for the technician-to-equipment ratio, so that’s kind of a way to sublet our maintenance, having someone do the maintenance altogether for a certain amount of vehicles and me not having to worry about developing a contract,” he explained.

Our tech-to-equipment ratio sucks. We're outnumbered. We're trying to do the best we can.” 

-Facundo Tassara, fleet manager, City of Norfolk, Va., on why a leasing contract with maintenance was the best option for the city.

Keeping Vehicles Under Cover

Leasing fulfills another function for the Orlando (Fla.) Police Department — keeping its undercover vehicles under cover.

“The drug unit, we used leased cars out of operational necessity, because of the need for unmarked vehicles and the need to change unmarked vehicles. We change them on a contract basis, whether it is one year or two years, to protect the integrity of the investigations,” said Lt. Darron Esan, who oversees the drug unit and its 61 leased cars.

The leased vehicles are separate from the rest of the police department fleet, which is managed by a civilian fleet coordinator and is serviced by the city’s fleet management team. Esan explained that leased vehicles, about half of which are leased from Acme Auto Leasing, come with their own maintenance plans. Drivers take vehicles to a list of facilities authorized to do routine maintenance on the vehicles, a service that takes about 20 minutes.

As part of his responsibilities, Esan makes sure those with leased cars stay on top of their PMs. He sends out monthly e-mails to drivers to collect odometer readings and remind them to get their PMs done if needed. Because the cars are mobile offices, Esan said they’ve been diligent about bringing them in for service.

St. Lawrence County, N.Y., leased 23 vehicles to replace the oldest units in its fleet, reducing operating costs. Photo courtesy of St. Lawrence County
St. Lawrence County, N.Y., leased 23 vehicles to replace the oldest units in its fleet, reducing operating costs. Photo courtesy of St. Lawrence County

Leasing Fire Trucks

It’s not just light-duty vehicles that can be leased. A number of agencies lease their heaviest and most expensive units — fire apparatus.

In 2016, the City of St. George, Utah, leased three pumper trucks for $2 million. City policy is generally to purchase vehicles, but the cost of the apparatus made three-year leases a better option. The city will purchase the fire apparatus for $1 each when the lease ends, said Courtney Stephens, fleet manager.

Fleet staff will maintain and repair the Pierce vehicles. Expected to arrive in September, the vehicles represent an expansion to the fleet by two units. Despite the fact that the fleet has grown, a newer fleet means less maintenance, so Stephens doesn’t expect maintenance to be affected.

“Those [older units] were constantly in for maintenance. The new ones will not be in early as much, so it will help us in that aspect,” he said.

The City of Modesto, Calif., also recently entered into a $5.8 million contract to lease five pumper trucks and two tiller trucks to update its fleet. The city delayed vehicle replacements during the recession, resulting in excessively high repair costs. According to city documents, the Fire Department spent an average of $424,000 per year on repair and maintenance of its aging fleet, and the industry standard is about $200,000 to $300,000 for a fleet of its size. The new Pierce trucks will help the department reduce its fleet operating costs.

David Barr, fleet manager, said city technicians maintain and repair all Fire Department vehicles. This was a change from three years ago, when the Fire Department had its own fleet technician who handled maintenance of the city’s 15 fire trucks and engines. One technician couldn’t handle all the work alone, pushing the city to merge the two fleets.

“The outsourcing of the repairs was getting out of hand, and the quality was poor,” Barr explained. “Now we’ve brought it inside, and we have several people who can work on these trucks. We have pride in our own vehicles so we make sure they’re done properly, and the internal work is far less expensive.”

The city has the option to purchase the vehicles when the lease ends.

A Solution for Select Fleets

Leasing may not be for every fleet, and some may claim the higher costs aren’t the best use of taxpayer dollars. Outsourcing maintenance can also lead to pushback from unions and technicians, who may see it as a threat to jobs. And there’s also the political factor — taxpayers and elected officials may not like public servants driving new cars, especially if other services or departments are underfunded.

Traditionally, public agencies prefer to buy their vehicles. But in many instances, fleets can make a case for leasing a portion of the fleet to reduce costs and improve efficiency. 

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