When Switching from Leasing to Purchasing is More Effective

Back in the mid-2010s, the city of West Jordan, Utah, realized its police vehicles were in bad shape and began discussing ways to bring the fleet up to date while reducing repairs and downtime. It had a fleet replacement fund in the city budget, but it had been decimated after the recession years, so capital was minimal.

It decided on leasing and began in 2015 with the first group of vehicles. There were about 120 vehicles, marked and unmarked, divided over three years with three-year leases. The vehicles would be sold with all upfitted equipment still installed, except the radio and video equipment.

However, a change in leadership brought about a cost/benefit analysis of leasing all these vehicles.

Making Informed Decisions

“We had new vehicles every three years and updated technology. Costs would rise a bit over time based on new technology and increased pricing for new vehicles, and these changes were predictable. Nevertheless, the total targeted life of the ownership of the vehicle was never reached,” Fleet Manager Ben Roueche, CPFP, explained.

Fleet data showed that unmarked vehicles could run for double the time the city had them, if not more; marked units could easily be kept for an additional year or two. However, since it was a three-year lease, which is less than the target life of the vehicles, they couldn’t be kept longer.

“When viewed at the actual usable life, the total cost of ownership (TCO) began to show savings when purchased instead of leased. Over six years of leasing, the replacement fund had grown back to a level that could support purchasing,” he said.

The city’s lease was open-ended with a residual payment, usually about 40% of the original price of the vehicle and upfitting.

Looking at Savings

The Fleet Department found moving to a four- or even a five-year lease would save some money: the numbers showed a 32.75% savings in TCO. With lease payments per year reaching over $1.3M, that projected saving about $447K of that payment.

“I think leasing has its place. It’s a good launching point when beginning a replacement program for your fleet, and it’s a good way for small fleets to combat the lack of their own personnel for maintenance. But if you have the funds to do it, purchasing vehicles and operating them for their useful life is the more cost-effective way to go,” he explained.

If you need to update part of your fleet or start a replacement plan and use leasing as a tool to do so, Roueche believes an exit strategy to get out of the leasing model is needed.

“Be careful with the conditions of the end of lease and understand what you will need to do with the vehicles. The original plan was to sell these vehicles after three years to other agencies as ready-to-use police vehicles. The number of hours needed to market and successfully sell them that way would far outweigh any positive return, and in reality, the vehicles were sent to wholesale auction,” he said.

What the city found after taking a huge loss in remarketing that first year was it would strip the vehicles, replace any damaged interior panels, clean them, and then send them to auction. With the additional work and attention, it was able to take a gain instead of a loss.

“But again, those are additional costs and hours that weren’t considered when we started,” he clarified.

Editor's Note: This article was originally published Aug. 2022 and was updated Nov. 2023.