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Leasing is a financial arrangement where you pay for the part of the vehicle life that you plan to useâ€”which is the amount by which the vehicle depreciates. When you buy a vehicle, you are paying for the vehicle's entire life up frontâ€”even if you are planning on using it for only two or three years before disposal.
VEMA's lease is a legal agreement between VEMA and your organization. When you sign a lease, you are agreeing to accept the terms and conditions of the contract including the fixed monthly rate and residual value. We calculate fixed rates based on overhead costs, the capital cost of the vehicle and interest. The fixed rate also includes all of our Fleet Management Services.
Residual value (sometimes called "salvage" value) is the estimated value of a vehicle at the end of a lease. VEMA sets the residual value for each individual vehicle based on expected market conditions for the vehicle type and the usage information you provide on your Vehicle Order form. Our goal is to set residual values as close as possible to re-sale numbers when the vehicle is auctioned at the end of the lease.
Sometimes a vehicle sells for more than the residual value. In this case VEMA would owe you the difference. The reverse would be true if the vehicle sold for less than the residual value.
The table below highlights how residual values affect the close of a lease.
|Residual value||Auction sale price||Difference|
|$10,000||$12,000||VEMA owes you $2,000.|
|$10,000||$8,000||You owe VEMA $2,000|
|$10,000||$10,000||$0. This is our goal when we establish residual values.|
It is possible to negotiate a higher or lower residual value -- but only before a lease is signed. A higher residual value will lower your monthly rates. However, if the vehicle brings less money than the estimated residual value at auction, your organization will owe VEMA the difference. Again, the reverse is also true.
To understand Fleet Management you need to start with a look at the Vehicle Life Cycle.
The Vehicle Life Cycle involves tracking and managing all of the decisions, usage information and expenses involved with a vehicle from the time you've identified the need for a vehicle, until its disposal.
The goal of effectively managing each vehicle's life cycle is to pay the minimum amount in acquisition and maintenance costs while getting the maximum return at disposal.
Fleet Management comes into play when you have more vehicles, and therefore, "lifecycles" to manage than you can effectively do with the resources at your disposal. You will realize greater efficiencies and savings by managing each vehicle within the broader context of your complete fleet.
Fleet Management looks like this:
At the centre of Fleet Management is a Fleet Management System. A Fleet Management System is a network of systems that captures and monitors all of the information involved with each vehicle life cycle in your fleet. It's the key to monitoring thousands of pieces of information.
At VEMA, we designed our own Fleet Management System (called "Keysâ„¢") specifically for the unique needs of public sector organizations.
Here's an example of how Fleet Management works.
Let's say for example that you leased two new 1/2 tons for a four-year term. When you ordered the vehicles you projected that both trucks would perform similar jobs.Â You anticipated approximately 25,000 km per year for each vehicle. Halfway through your lease term you identified that:
In effect vehicle A was depreciating more rapidly than vehicle B.
After receiving this information, you decided to "flip" these two vehicles allowing you to ensure vehicle B would have the heavier usage. In this instance by rotating these two vehicles you were able to maximize your resources and transportation dollars.
Fleet Management is a daunting task because of the vast amounts of detailed information to be tracked and monitored for each vehicle (think about the details involved with insurance alone!). Fortunately this is what VEMA does. Effectively managing public sector fleets is our specialty.
For more information on VEMA or our services, please contact:
VEMA Marketing at (204) 945-7642.
Page last updated January 11, 2011.