Friday, November 11, 2005

Vehicle Leasing Basics

Carshares can get their vehicles from a variety of sources: they may lease new vehicles, lease or buy used vehicles purchased at wholesale auto auctions. The latter could be a very attractive option if the carshare is willing to invest the additional time needed for this process. I have written earlier about novel ideas for alternate leasing strategies. No carshare is big enough, yet, to get the special "program car" deals that rental car companies get buying directly from manufacturers, perhaps because carshares typically keep their cars in service longer than rental car companies.

When you lease vehicles you soon discover that the major determinant of what your monthly lease cost will be is the Residual Value used to calculate the lease. That's how much the you or the leasing company expects to be able to sell the vehicle for at the end of the lease. Manufacturer consumer leases are able to offer low monthly payment because they've arbitrarily chosen a very high residual (and are prepared to eat the difference at the end of the lease, in order to move cars off the dealers' lots today). Unfortunately, these leases prohibit the commercial use of leased vehicles so carshares must navigate the commercial lease market - with higher interest rates and realistic residual values.

The other major factor in lease costs is the type of the lease - Closed-end or Open-end. With a Closed-End lease, if you return the vehicle in satisfactory condition (satisfactory as described in the terms of the lease), the leasing company accepts the risk that they can get their calculated Residual Value and you're done with it. With an Open-End lease, you're agreeing to share the risk that the residual used is a fair one and that the vehicle will net that amount. There are plenty of web sites that will tell you more than you want to know about leasing. Automotive Lease Guide has an excellent Leasing 101 tutorial.

The web is a great source of information about cars. Several websites that can help you manage your fleet more efffectively are: Intellichoice for information about the cost of ownership for new vehicles; Edmunds .
for information about the value of used cars; and Fleet Central . for information about the entire range of fleet management issues. Fleet Central is the web presence of Bobit Publications, the major trade publisher for various fleets - government, business, rental car, remarketing, etc. Another helpful website for larger carshares is the Automotive Lease guide - a data service that tracks wholesale prices of vehicles around the country.

Remarketing of vehicles at the end of their lease or service in your fleet is a major topic itself and is covered in the fleet magazines. Rental car companies for years have been managing their fleets and maximizing their profits from resales by carefully tracking the wholesale values of used cars at auto auctions using services such as the Automotive Lease Guide.

For smaller carshares selling their vehicles at the end of the lease, Edmunds does a good job showing you what you can hope to get if you're selling a used vehicle, showing expected Trade In Value, Private Party Sale and Dealer Retail prices, supposedly adjusted by region. Edmunds also has a database showing the cost of manufacturer's suggested maintenance procedures.