Case study: Buying vs leasing and renting vehicles
A metropolitan-based Community Service Organisation (CSO) Network decided to conduct a study of whether buying or leasing vehicles is more cost-effective. The CSO Network completed comparisons in July 2006 and January 2007 for 8 different types of vehicles manufactured by Ford, Holden and Toyota.
To calculate the cost of buying a vehicle, the CSO Network took into account:
- estimated changeover cost
- estimated running costs
- interest forgone on the money used to buy the vehicle
- a vehicle administration fee for managing the vehicle.
To determine the approximate cost of leasing each vehicle, the CSO Network used sample figures from a leasing company.
The research concluded that buying was more cost-effective than leasing for the selected vehicles. It found that savings of between $3000 and $8000 could be made when buying a car compared to leasing, depending on the model of the car.
The CSO Network emphasised that when buying it is important to put aside the depreciation amount for each vehicle so the organisation has the necessary capital when it is time to replace the vehicle. If the car can be sold for a higher price than the depreciated or written down value, a profit can be made on vehicle changeover but it has become more difficult to do this since the abolition of sales tax and the introduction of GST. Sales tax was at a much higher rate and CSOs did not have to pay it. This gave them a big price advantage in the used vehicle market when recovering purchase costs.
The CSO Network acknowledged that the short-term advantage of leasing for CSOs is that it requires a lot less up front capital than purchasing vehicles. However, in the longer term, it can be difficult to change from leasing to buying if the required capital is not available.
Another option that the CSO Network could have considered in addition to buying and leasing is vehicle rental. A rural-based CSO that provides housing and support services for disadvantaged people decided that vehicle rental was the best option for them.
Some benefits of vehicle rental identified by the rural-based CSO are:
- It can be cheaper than finance or operating leases.
- You are guaranteed a fixed price for the vehicle during the rental period, an advantage in times of escalating costs.
- There is no shortfall at the end of the rental agreement if the resale value of that model has dropped significantly.
- It does not require a large amount of vehicle management or administration (as when buying vehicles).
- Renting does not require a large amount of up front capital.
It is also very important to note that the option chosen depends on the individual circumstances and priorities of the organisation including such factors as available funding.
Supported by the Community Sector Investment Fund (external link - opens in a new window).