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2017 Auto Index
The 2017 GMC Sierra 2500HD is a confident and capable heavy-duty pickup truck, engineered with precision. See more of 2017 GMC Sierra 2500HD at GM Fleet.
A new technology gives security cameras the ability to recognize when a person is texting and driving, raising questions about drivers’ rights to privacy.
Yielding the right of way at intersections can be confusing for many drivers. Here are the requirements and best practices you need to know.
Chevrolet announced today pricing for the low cab forward medium-duty trucks – the brand’s newest entry into a growing segment of the commercial vehicle market. Pricing for the trucks with gasoline engines will start at $40,900. Pricing for trucks with diesel engines will start at $48,375. Prices will include a $1,125 destination charge but exclude tax, title, license and dealer fees.
Alphabet Inc’s Google unit (GOOGL.O), Ford Motor Co (F.N), the ride-sharing service Uber [UBER.UL] and two other companies said on Tuesday they are forming a coalition to push for federal action to help speed self-driving cars to market.
Ford Motor Co will invest $1.6 billion in two U.S. factories to start making a new automatic transmission and expand output of certain commercial trucks, the company said on Tuesday.
The fleet leasing industry is taking a cautiously optimistic approach to coming changes in accounting standards that have reignited discussions about the leasing instruments that have become essential tools for procurement of fleet vehicles.
The Financial Accounting Standards Board’s (FASB) new lease accounting may not have a seismic impact on fleet management when they arrive in early 2016, but fleet managers will need to assess the impact of including lease obligations on corporate balance sheets and should initiate thoughtful, preemptive conversations with their finance departments.
In the commercial fleet industry, leasing has become the dominant way companies acquire their vehicles, a trend that stands in stark relief to the public fleet realm, where fleet managers often deploy replacement reserve funds to fund fleet purchases.
Companies choose to lease their vehicles as a way to reduce the amount of capital tied up in non-core assets, as well as to reduce sales tax by paying tax on a leased vehicle similar to rental instead of paying tax on the vehicle purchase amount.
Commercial leasing has evolved from the early days of closed-end offerings, where fleet managers now face two main choices, including open-ended and closed-ended leases that offer basic benefits. An open-ended lease is set up as a “cost plus” arrangement, while the closed-end lease offers a fixed price.
Fleets that opt for leasing over financing or outright cash purchases still mostly prefer an open-ended TRAC lease, which can also be known as an operating lease. TRAC, which stands for Terminal Rental Adjustment Clause, is a certification that tells the Internal Revenue Service that the lease conforms to its tax codes and isn’t considered a daily rental agreement. Open-ended leases typically offer a fleet manager more flexibility in dealing with variable mileage and greater input into remarketing decisions.
Other fleets prefer closed-end operating leases that provide greater cost certainty for tighter monthly budgets, smaller fleets, or executive fleets that tie vehicles to compensation.
Companies turn to closed-end leases when they’re looking to get a fixed-cost solution for the provision of vehicles rather than taking the risk themselves and waiting until the vehicle is disposed to know what their ultimate cost was.
Choosing a lease should always be undertaken with a clear idea of how the vehicle will be used in the field. Other factors that must be considered include the company’s financial needs, operational requirements, asset type and utilization. Executives with fleet management companies suggested that fleet managers should calculate the total cost of ownership of a vehicle before choosing a leasing instrument.
Let’s take a closer look at leasing options available to commercial fleets. Read our sidebar about the benefits of using capital to purchase fleet vehicles outright. Financing fleet vehicles is yet another option that may lose steam as interest rates rise higher.
Open-Ended Leasing: Flexibility and Control
Open-end leases have become pervasive in fleet leasing because they offer fleet managers greater control of asset utilization and disposal. In an open-end lease, the lessee agrees to a minimum term that’s usually at least 12 months and can terminate the agreement at any point after the end of the term. The lessor then sells the vehicle. If the proceeds of the sale are greater than what was calculated in the agreement, the lessee receives a reimbursement. If the vehicle is sold for less, the lessee must reimburse the lessor for the difference.
Open-end leases carry no mileage restrictions and as a result appeal to companies with unpredictable mileage. High-mileage vehicles will depreciate faster, which will force the lessee to bear the brunt of higher use in the used-vehicle market. The lessee also assumes responsibility for re-marketing decisions, including the risk or reward involving resale value.
Fleet management companies usually offer different kinds of open-end leases depending on the accounting guidance from the corporation’s finance department.
The difference between a capital and operating lease comes down to the accounting guidance that governs leases, If at least one of the four criteria is true then the lease would be classified as a capital lease on the lessee’s account books.
A lease would be considered a capital lease if the ownership of the asset is shifted to the lessee, the lessee purchases the asset at below market price by exercising a “bargain purchase option,” the lease term encompasses at least 75% of the useful life of the asset, or the present value of the minimum lease payments plus any lessee guarantee is at least 90 percent of the fair value of the asset at lease inception.
In the present leasing environment, a capital lease would be added to a company’s balance sheet while an operating lease could be kept off the balance sheet, a situation that will likely change under the new accounting standards.
Open-end leases appeal to fleet managers with re-marketing expertise who monitor the used-vehicle market and can sell vehicles during peaks in the value cycle.
Closed-Ended Leasing: Predictable Outcomes
Closed-end leases can resemble retail leases and appeal to fleets seeking a fixed monthly payment. With this lease, the term is set and monthly payments are based on the estimated residual value of the vehicle at the end of the term. The leasing company estimates this value, and sets restrictions on mileage and wear. The lessee can walk away from the deal at the end of the term with no additional costs if the vehicle didn’t exceed the maximum mileage or wear-and-tear parameters. The lessor sells the vehicle and assumes responsibility for any profits or losses caused by fluctuations in market value.
Closed-end leases have the benefit of a predictable monthly payment with no residual risk to the lessee at term end, with the lessor assuming the residual risk, the potential drawback is there are usage provisions incorporated into the lease, which could lead to end-of-term charges for customers that did not accurately project usage at lease inception.
Closed-end leases can carry penalties for mileage overages or increased wear and tear, but the fleet management companies offering these products say they make adjustments to gain customer loyalty.
The mere prospect of having an excess mileage charge or early termination fee causes some fleets to remove closed-end leases from consideration. The reality is that whether a lessee is in a closed-end lease or an open-end lease, they are going to have to deal with the economic realities of the use of that vehicle, whether it is terminating a lease earlier than anticipated or driving higher miles.
The economics of a closed-end lease payment usually make sense when driver mileage is predictable.
Closed-end leases provide more certainty to fleet managers who worry about the future of the used-car market, which has been strong in recent years. These leases fix the cost of depreciation, which typically makes up the highest cost in the Total Cost Of Ownership equation.