Fleet Vehicle Purchase Not Such a Great Deal?

browser on 18/12/2017 - 23:34

Was looking into buying a car through salary sacrifice, but after doing some basic maths it doesn't look that great.

Buying outright:

  • Driveaway price: $62,000 (before negotiation)
  • Running costs:
    • Registration: $600 x 2 (rego & CPT for 2 years)
    • Insurance: $1,000 x 3 (compo for 3 years)
    • Service: $500 x 3 (maintenance for 3 years)
    • Fuel: $1,500 x 3 (1,000L @ $1.50/L per year for 3 years, assuming 10,000km/year)
  • Total cost over 3 years: $72,200

Fleet purchase:

  • Lease term: 36 months (3 years)
  • Weekly deduction: $310 (covers all running costs, exclude tolls)
  • Total cost over 3 years: $48,360
  • At the end of the lease, either walkaway or purchase the car at market value
  • Market value is unknown, will be determined a month before lease ends, I'm guessing $30,000?

It seems buying outright is at least $6,000 cheaper than leasing, am I missing something? I thought with GST and pre-tax advantages, leasing should be cheaper than buying, much cheaper. But it is the opposite.

Financial

Comments

  • El Grande on 18/12/2017 - 23:49
    +3

    Leasing is never cheap. There are lower upfront costs involved and you can deduct more on your tax. If you buy outright you can only claim up to $55K. If you buy on lease then you can claim lease amount every year and then the residual value at the end of your lease. Talk to your accountant. This is what they are paid for.

    • browser on 19/12/2017 - 22:19

      It seems the leasing company is the big winner.

      • El Grande on 20/12/2017 - 17:24

        How would they make money otherwise?

        Dealers are also winners because lease cars are mostly at RRP.

  • chillybags on 19/12/2017 - 07:17

    Is this a novated lease or some different arrangement?

    It only really works out if you are driving lots of KM per year. I think it also helps a lot if its a cheaper car ($20-30k range), but I haven't done the calculations on a more expensive car so don't quote me on that.

    I started a novated lease on a $27k Nissan in November and I drive 45,000km a year. Did a lot of maths and calcs behind it and It should work out at me paying about $23k for the car at the end of my 12 month lease.

    Also the balloon payment at the end should be set - it is dictated by the ATO cant remember exactly but it will be around 40-45% for a 3 year lease. It is 65% of original purchase price for my car, so $17k

    • browser on 19/12/2017 - 22:25

      Just normal salary sacrifice, not novated lease. The car will be under the employers name, I get to use it for 2 or 3 years term.

      There's no balloon payment, because it's just like renting the car for 3 years. Though the option to purchase will be there.

  • Euphemistic on 19/12/2017 - 08:31
    +1

    10,000km doesn't seem like a lot for buying a new $62k car. For lower kms like that, pick up a second hand car a couple of years old.

    Need more inputs for the calcs

    Are you borrowing the $62 up front, at what rate. Alternatively will you be clawing back some mortgage offsets, and therefore paying more in interest on your mortgage. The lease rate will include a finance component.
    Rego seems cheap, but you probably know what your local rego costs.
    Tyres? But you probably wont need them at 10,000km/yr
    Depreciation, I guess that is offset by calculating the final lease payment. You'll need to get a better idea what it's worth at the other end.

    Leasing has advantages of a smaller payment up front, but you need to save for the payment at the end of the lease. It also locks you in if you change circumstances. Buying outright means you pay more up front. I looked into it years ago and went and bought outright. The final calcs didn't change my mind, but being locked in and potentially having to find a large bucket of cash for the end of lease payment was a turn off.

    • browser on 19/12/2017 - 22:35

      Usually take public transport or cycle to work, so don't drive that much.

      Just want to get a nicer car. No finance or mortgage offset involved, so nothing complicated but would like to work out the best approach.

      • deebrie on 21/12/2017 - 02:48

        You can get a nice car for half the price you're talking about. It's a waste of money to spend that much for one imo.

        • browser on 21/12/2017 - 21:43

          I agree with you. But I have not driven a decent car for some time, primarily due to low usage, my Prius has done just under 60,000km.

          The 10 years old Prius has got push button start and keyless entry, these are features I want to keep and they typically do not come with entry models. Top of range variants of any car typically start at 40s, so 60 for a slightly nicer one is not unreasonable.

  • Rescue 26 on 19/12/2017 - 08:41

    You have forgotten to factor in your savings in income tax. This is the main advantage of the novated lease. Exactly how much you save will depend on your marginal tax rate. Even so, it may work out cheaper to buy outright if you can afford the initial up front cost. Do the math.

    • browser on 19/12/2017 - 22:45

      Weekly $310 already includes pre-tax component.

      IIRC ECM breakdown is $110 after-pre-tax, $200 post-tax. So there's no further tax advantage.

      In other words, $310 x 52 x 3 ($48,360) is the true cost of using (renting) the car for 3 years.

  • k-rokfm on 19/12/2017 - 09:06

    And the fact buying outright doesn’t incur interest. If you were to compare it against a similar length loan you may be out ahead.

    • browser on 19/12/2017 - 22:47

      True, I did not factor in finance cost (unless cash is available) or opportunity cost (if cash is used for other investments).

  • JimmyF on 19/12/2017 - 10:47

    It seems buying outright is at least $6,000 cheaper than leasing, am I missing something?

    Leasing for the average person isn't worth it.

    Leasing in a business when those payments are 100% tax deductible, is a different thing.

    Also remember, leasing has zero upfront vs buying that needs $63k up front.

    • browser on 19/12/2017 - 22:49

      I see, so the main advantage is low upfront cost. Also helps budget planning.

      • JimmyF on 20/12/2017 - 00:00

        One of them, and business can write 100% of the lease payment off on tax in that year.

        BUT if they purchased a vehicle, that vehicle has a tax depreciation schedule applied to it, and that normally takes 3 years. ie a $63k vehicle, they can claim $21k tax write off each year.

        and yes upfront cash is another issue. Need 10 vehicles? Thats $630k upfront, or lease them for $3100/week in your example ($162k/year).

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