photo: photo: VW, montage: company car
Whether companies lease or buy their cars depends on many legal, economic and company-political factors. Company car explains what matters in detail.
Opinions differ on the financing of the vehicle fleet. Some companies buy their company cars out of conviction, others opt for leasing. Generally, the larger the fleet, the more often companies lease their company cars. This is also the result of a recent survey by the Corporate Vehicle Observatory (CVO).
Large companies tend to lease
While both forms of financing still balance each other out in the case of small and medium-sized companies, the leasing share in the case of larger companies is a good 70 percent. upward trend. This is due, among other things, to the increasing requirements of the banks when granting loans. when a company buys cars, banks are more skeptical and hesitant.
But detailed calculations do not always make the difference. A good proportion of fleet operators do not want to relinquish control or use the vehicles for longer than the standard leases run. In an earlier survey by the CVO, five percent of fleet managers were unable to give any reason at all. Personal preferences often play a role. And, of course, what influence the company management has on fleet management – or vice versa. In these cases, the question of whether to buy or lease a corporate fleet becomes a politically strategic decision.
Company must make strategic decisions
Financing costs essentially depend on two factors: the return on existing capital that could be invested as an alternative and the conditions at which a bank loan can be taken out.
photo: hanno boblenz
The most important differences at a glance
| leasing | purchase |
| car remains the property of the leasing company | ownership of the vehicle including the right to a warranty |
| saving equity/increasing liquidity | car can be freely used or sold |
| leasing rates are deductible as operating expenses | capital commitment |
| companies can benefit from discounts offered by suppliers | depreciation reduces profit |
| fleet is always up to date | no planning certainty for current operating costs |
| restrictions on use | no cumbersome/unsecure return procedure |
| Planning security/ secure basis for calculation | residual value risk |
| no residual value risk with mileage contracts | selling the vehicles on your own account (warranty obligation) |
| possible additional payments and problems with the return of the vehicle | Costly capital procurement |
| scope of insurance can be self-determined |
A loan from your bank is only worthwhile if the financing offers from the dealer or the manufacturer’s bank are more expensive than the company loan. Once a decision has been made in favor of a loan, monthly installments, special payments and term can be agreed individually.
Leasing agreements are less individually tailored. Special payments are also available here, but the limits are tighter. In principle, a leasing rate is made up of three components:
- Acquisition price
- Imputed residual value
- interest rate.
However, the interest rates are usually higher than for a loan. In addition, providers often charge profit markups. This disadvantage could be compensated for by the good conditions offered to major customers.
Leasing installments are off-balance sheet
Leasing installments can be claimed in full as operating expenses without affecting the balance sheet. This increases the equity ratio and liquidity. When purchased, on the other hand, company cars are part of the company assets that must be reported in the balance sheet, and their acquisition costs may not be claimed immediately. However, depreciation also reduces the company’s profit. It is calculated on a straight-line basis over six years. If the fleet vehicles are sold at the end of their term, the proceeds are taxable as extraordinary profits.
Photo: ford
The advantage of a leased vehicle fleet is that the company’s own vehicles can be sold at any time and the company remains flexible if the workforce shrinks. A leasing contract runs for several years; early termination of the contract is expensive. In addition, there is the threat of hefty additional payments if the agreed mileage is exceeded. If, on the other hand, you drive less than agreed, you incur unnecessary costs. Purchasing is also an option for special equipment requirements. For vans with special conversions, for example, it is difficult to obtain a leasing offer, or only at expensive conditions.
Owner decides on type of insurance
When buying, the owner decides how the vehicles are insured. On the other hand, most leasing contracts provide for full insurance coverage. Often the amount of the deductible is also determined. It could be worthwhile to forego fully or partially comprehensive cover and instead set aside provisions for the event of a claim.
In addition, the lessee has bad cards in the event of a total loss. Although the customer has an extraordinary right of termination and does not have to pay the leasing installments until the regular end of the contract, he cannot avoid the so-called early termination fee for lost profits and interest.
Marketing end-of-life fleet vehicles is one of the biggest challenges of a purchased fleet. In the case of leasing, the leasing company bears this risk. At least with mileage contracts. With a residual value contract, on the other hand, the amount of the installments is based on the assumption that the leasing company will be able to resell the car at a predetermined price. If this does not work because the market has collapsed, the customer has to pay extra. A risk that fleet operators shy away from. They are increasingly relying on mileage contracts.
Usual signs of wear and tear are included in the lease payment
In both cases, normal signs of use are included in the leasing rate. However, if there is further damage, the lessee has to dig deep into his pockets. According to the association of independent fleet management companies, an average of 700 euros in additional payments is due in the event of damage.
Photo: joachim mottl
When purchasing, the exploitation risk lies with the owner. Here, too, it depends on the used car market whether the residual value calculation works out. In addition, the company has a warranty obligation when selling to private individuals and employees.
So the decision to buy or lease always depends on the company’s individual situation. The corresponding advantages and disadvantages do not always have the same effect, and not for every company in the same way. It is important to assess the future realistically. Nevertheless, a financing comparison always represents only a business forecast.