Lift truck tips: Lease or buy?
A company's financial strategy usually dictates whether it leases or purchases lift trucks. The decision should go deeper than that.
By Tom Andel, Editor In Chief -- Modern Materials Handling, 10/1/2008
Some companies don’t want to tie up capital. The idea of having fixed monthly payments appeals to them. Others prefer to buy equipment. They’ll maintain it until every penny of its cost is returned—and then some. Here are other guidelines to consider when making the lease vs. buy decision. We asked several lift truck financing specialists for their two cents.
Janet Appleby, financial services manager,
Jungheinrich
A fair market value (FMV) lease entails a set rate for a set number of months. At the end of that term, the user can either return the equipment or purchase it. The financial benefit? The equipment doesn’t appear as an asset on the books and thus is not subject to property taxes.
In a $1 buyout lease, the customer owns the equipment at the end. This allows the company to pay for the equipment over a set number of months. The equipment does appear as an asset, but it can be depreciated over time.
Christina McCaughey, director,
Yale Financial Services
Here’s a rule of thumb: Buy things that appreciate and lease things that depreciate. More than 70% of Yale customers lease lift trucks. In fact, many acquire lift trucks under a full maintenance lease agreement where they are paying not only for the use of the equipment, but also for maintenance. As long as the equipment is not being used in a very harsh environment with abnormally high hours, a lease is usually the best choice.
James Wilcox, vice president of sales
, Raymond Handling Solutions
More than 50% of all equipment we supply is leased, and a majority of leased equipment is a fair market value lease. As lift truck technology evolves, end users prefer opportunities to replace fleets with the latest lift truck advancements, reducing the overall cost of ownership. The idea is to invest in other areas of the business instead of tying up capital in lift trucks.
Michael Sain, vice president
, Material Handling Inc.
We heavily promote our long-term rental programs because they are application driven and structured to be the most cost effective way to utilize equipment. However, there are so many lease products available that the end user should sign up for the program in their best interest. Steer clear of poor contracts with punitive language. It’s that kind of experience that makes forklifts, for many end users, a necessary evil.
:
| Purchase | Lease |
| Chart courtesy of: Richard Pipenhagen, national sales and marketing manager, Toyota Financial Services Commercial Finance | |
| Product has low risk of obsolescence | High risk of obsolescence |
| Limited product innovations | High degree of product innovation |
| Low or unpredictable utilization | Potential for change in product specifications |
| & 1,000 hours per year | Predictable utilization |
| Low service and repair requirements | High cycle > 1,500 per year |
| No issues with capitalization and depreciation of asset | High service and repair requirements |
| Desire for off-balance sheet transaction | |
| Capital budget constraints | |
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