California city expects to cut fleet costs with leasing program

Through the leasing initiative, the department will obtain nine marked patrol cars, six detective-staff vehicles, two multipurpose pickups and two motorcycles. In the process, the department will reduce its current fleet from 22 to 19 vehicles.

The town’s taxpayers will get a few benefits as part of the lease arrangement: reduced maintenance and fuel expenses, and a cash infusion to the town of more than $108,000, according to city officials.

The Dakotas being added are four-door, five-passenger vehicles that can serve a variety of purposes; that way, the reduced fleet size will have no adverse impact on police response.

How it works: Rather than buy three to four cars per year at an average cost of $105,266 – then paying another $55,200 annually for maintenance – the city will lease the vehicles at a yearly cost of $124,680 for four years.

The leased vehicles carry five-year, 75,000-mile bumper-to-bumper warranties, which effectively drop annual maintenance expenses to an estimated $24,020.

At the conclusion of the lease contract, the city can pay $1 and own the units. The city has the option to sell all of the vehicles to finance the next lease or it can retain a few to lower the cost of that lease.

Police officials said one of the benefits of the lease arrangement is that the used units, because of their bumper-to-bumper warranties, will have a higher resale value than the ones the department has purchased.

Ford Motor Credit Co. is financing the lease at a 5.4 percent interest rate. The town is piggybacking its lease with Alameda County’s lease arrangement so more favorable rates can be obtained.

Arroyo Grande is located midway between Los Angeles and San Francisco, in San Luis Obispo County, Calif. The U.S. Census Bureau estimates that the 2006 population of Arroyo Grande was 16,415.
 
Beware of the ‘pay-before-you-go approach’

Fleet-management consultant Paul Lauria, president of Gaithersburg, Md.-based Mercury Associates Inc., urges government officials to analyze their fleet-acquisition options.

“There are too many government jurisdictions that continue to pay, up front, for vehicles using what we call a pay-before-you-go approach, where they pay 100 percent of the cost of every vehicle, before they even drive it one mile, and those are the jurisdictions that tend to have the oldest fleets,” Lauria told GovPro.com. “In a down economy, they tend to be the first ones to slash appropriations for their replacement vehicles, because they don’t have a mechanism for paying for the replacement of their vehicles incrementally.”

In that scenario, Lauria noted, the jurisdiction is paying 100 percent of the capital cost up front, rather than paying for the use of the vehicle over time.

“I think that government jurisdictions, a lot of them, need to do a better job of exploring the benefits of leasing and lease purchasing,” Lauria asserted.