Vehicle acquisition and asset costs
These are the components of the capital costs of your fleet which also includes vehicle financing and depreciation. Before deducing ways to control capital costs, it’s important to understand the how does the company sources the vehicles. Is it through buying or leasing? This is imperative to understand the financial position of the company and the related accounting procedures.
Acquiring a vehicle can either be in form of ownership or lease agreements.
1. Vehicle ownership:
The owner/company purchases the vehicle and thus maintains the ownership throughout that also includes all responsibilities for servicing and maintenance.
The company acquires the vehicles on agreement basis and leasing company maintains property ownership. Preventive vehicle maintenance is either scheduled by fleet managers or the leasing company carries out the timely checks based on the contract.
3. There could be separate fleet costs for employee owned vehicles used for company/ business purposes.
Considering the cost benefit analysis the fleet manager may find the most suitable option for vehicle utilization for business purposes. Depreciation is one of the key elements that accounts for the total cost of running fleet. Determining the vehicle lifetime value and maintenance requirements with proper usage guidelines to drivers will help to keep a check on this section of the capital cost.
Asset costs include the vehicle acquisition costs, lease value, installed equipment costs and insurance costs. Every equipment generates a disposal cost at the end of its lifetime and must be include under asset costs even when sold off. Surprisingly acquiring used vehicles could be sometimes beneficial depending the annual miles usage by the company and could lessen the cost for fleets.
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This is a part two of a five series blog, outlining the significance of the major costs associated with fleet management and how they can be controlled for better fleet performance.