B~'OWARD

B~'OWARD '? COUNTY

FLORIDA

Office of the County Auditor

115 S. Andrews Avenue, Room 520 ?Fort Lauderdale, Florida 33301 ? 954-357-7590 ? FAX 954-357-7592

([KLELW

August 17, 2016

TO: FROM:

Mayor and Members, Board of County Commissioners

Evan A. Lukic, Cou~irbr

SUBJECT: Vehicle Leasing Pilot Program

We recommend the Board direct the County Administrator to discontinue the vehicle leasing pilot program and return to purchasing vehicles.

Background and Basis for recommendation:

On February 4, 2014, the Board approved a vehicle leasing pilot program to allow County agencies to lease rather than purchase up to 305 vehicles. As of September 30, 2015, agencies had leased 99 vehicles under the program .

In an effort to evaluate the cost effectiveness of the leasing program we compa red the County's estimated vehicle costs under the leasing program to estimated vehicle costs assuming the County purchased the vehicles. Our analysis indicated that vehicle costs under the lease program would average 24% more than costs under the County's traditional ownership program. A limited industry literature review validates the results of our analysis.

Our analysis - leasing would be 24% more costly than buying over a 10 year period.

Under the County leasing program , vehicles are leased for three-year terms. The leases include routine preventative maintenance and up to 15,000 miles per year after which additional mileage charges apply. In contrast, the County has traditionally purchased its vehicles and generally retains its vehicles in service for 10 years or up to 100,000 miles, whichever comes first.

We selected four of the nine vehicle makes and models leased by the County, representing 63 of the 99 vehicles leased as of September 30, 2015. We compared costs to purchase and maintain the vehicles for 10 years versus leasing the vehicles for three consecutive three-year leases plus one year for a total of ten years. We also considered the cost of financing vehicle purchases over the first 5 years.

Our analysis showed that vehicle costs under the lease program will average $7 ,700 or 24% more than the average cost of purchasing and maintaining vehicles over 10 years

Broward County Board of County Commissioners Mark D. Bogen ? Beam Furr? Dale V.C. Holness ? Marty Klar? Chip LaMarca ? Tim Ryan ? Barba ra Sharlef ? Lois Wexler



or 100,000 miles. Our analysis also indicated that potential financing costs of vehicle purchases would not materially change the results of our comparisons.

The results of our review show vehicle costs under the leasing program will be consistently higher than either purchasing for cash or financing as illustrated in Exhibit 1 below. Further cost details are provided in the Appendix 1 on page 4.

Exhibit 1 10 Year Cost Com arison of Vehicle Leasin versus Purchase b Make and Model

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FORD FOCUS

FORD FUSION

FORD TAURUS

CHEVY SILVERADO

? Purchase ? Financing lease

Source: Office of the County Auditor analysis

* Fuel and insurance costs were assumed to be consistent whether a vehicle was leased or purchased

and therefore were not included in our analysis.

It should be noted that vehicle leases can have added costs at the end of the lease term for extra mileage and excessive wear and tear. Because such costs are unknown until leased vehicles are returned to the lessor at lease te rmination, they have not been included in our analysis.

Industry Literature supports our analysis

To validate our analysis, we performed a limited literature review of leasing versus buying articles. The consensus of articles reviewed indicated that leasing is more expensive than buying. One article compared six years of leasing (2 leasing cycles) to ownership of midsized sedans and concluded that leasing costs 27.4% more than ownership. The cost difference was principally due to the residual value of the vehicle to the owner after the six years.

2

Other Considerations:

It is important to note that cost is not the only factor to be considered when deciding to lease or buy. The following comparison presents a summary of the advantages and disadvantages (including non-financial items highlighted in red) of leasing versus buying:

ADVANTAGES OF LEASING Lower monthly payments or no down oayment Drive a better vehicle for less (upfront) money Lower repair costs - under factory warranty

ADVANTAGES OF BUYING Vehicle can be modified

Buying is more economical over long term

No excess mileage penalty

Easily transition to new vehicles every 2 or 3 Flexibility in selling the vehicle vears No trade-in hassles at the end of the lease

DISADVANTAGES OF LEASING No ownership of vehicle at the end of the lease Mileage is typically limited to 12,000 miles a year

Leasing is more expensive than buying a

vehicle and keeping for years

Excessive wear and tear charges at end of lease Costly to terminate lease if driving needs chanqe

DISADVANTAGES OF BUYING Higher down payment

Monthly payments are higher than lease payments Responsible for repairs after warranty period

Trade-in or selling hassles

Cash value is tied up in vehicle

The non-financial advantages of leasing identified above; easy transition to a new vehicle every 2 or 3 years and no trade hassles do not align well with the business needs of managing the public's fleet.

Conclusion:

The higher cost of leasing over purchasing fleet vehicles is not justified. EAL/ff/besa

cc: Bertha Henry, County Administrator Robert Hernandez, Deputy County Administrator Alphonso Jefferson, Assistant County Administrator Monica Cepero, Assistant County Administrator Gretchen Cassini, Assistant to the County Administrator Chris Walton, Director, Transportation Department

3

APPENDIX 1

Comparison Purchase, Financing and Vehicle Leasing Costs

(Assuming 10 Year Life Cycle)

Option Outright Purchase*

Estimated Costs Purchase Price1

Repair/ Maintenance2 (Disposal Value )3

Ford Focus

$14,450 $15,000

($ 1,575)

Ford Fusion

$ 16,480 $15,000

($1,625)

Ford Taurus

$20,440 $15,000

($ 1,625)

Chevrolet Sllverado

$22,075 $17,760

($4,625)

Net estimated cost Purchase- Financing Cost4 Financing* Net estimated cost

$27,875 $524

$28,399

$29,855 $597

$30,452

$33,815 $74 1

$34,556

$35,210 $800

$36,010

Lease*

Lease payments5

$33,480

$36,720

$47,040

$36,840

Incidental repairs6

$224

$626

$539

$2,353

Net estimated cost $33,704

Source: Office of the County Auditor analysis

$37,346 $47,579

$ 3 9, 1 9 3

*Amounts do not include fuel, insurance and accident costs on the assumption these costs are constant

across the three options.

1 Price per Florida State Motor Vehicle Contract 2 Estimated 10 year costs based on monthly repair/maintenance fee charged by Fleet Services Division to user agencies 3 Disposal value per National Auto Dealer Association reported trade-in values, rough condition, and 100,000 miles 4 Rate of 1.41 % over 5 years, based on 2015 Miami Dade Police Department financing arrangement with Bank of America 5 Analysis assumes lease vehicles will be replaced every three years at the same monthly charge. 6 Average cost of unscheduled repairs for the first 3 years based on work order reports from FY 2012 through FY 2015

4

Office of the County Auditor Board Action ? Agenda Item #67 September 15, 2016

A. MOTION TO FILE County Auditor's memorandum regarding Flexible Spending Account Forfeitures Recommendations.

(Transferred to the Regular Agenda.)

67.

B. MOTION TO ADOPT County Auditor's recommendations.

(Transferred to the Regular Agenda.)

Attachments Exhibit 1 - County Auditor's memorandum regarding Flexible Spending Account Forfeitures Recommendations Exhibit 2 - Management's Response

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