The City has historically purchased vehicles for City departments and as a cost containment measure, kept them for at least 10 years or until the maintenance cost exceeds the cost to replace.  This has resulted in some sedans that are 20 years old among the City’s fleet.  The City currently has five sedans scheduled for replacement in the FY 2020-21 budget.  These sedans will be assigned to various City departments as determined by Fleet Management.

Some surrounding cities have implemented leasing programs for their fleet and have identified cost savings through minimal maintenance and higher resale value at the end of lease term when compared to purchasing.  Currently, the City uses various leasing programs for some Police vehicles and the rideshare program.

Enterprise Fleet Management, Inc. recently provided the City with a proposal for their Open-End Lease and Maintenance Program for sedans. Finance and Public Works staff worked together to evaluate leasing versus purchasing, and options for the maintenance of leased vehicles. 

A cost benefit analysis was done comparing purchasing to leasing vehicles.  Staff reviewed the lease terms, purchase cost, resale value, tax impacts, cash flow, and other financial and risk management considerations.

Staff also reviewed Enterprise’s leasing and maintenance program and compared it to purchasing and maintaining the vehicles in-house.  Staff concluded that maintenance costs can be effectively reduced by leasing vehicles on a five-year term when comparing to our current practice, which requires more maintenance effort as vehicles age.  Additionally, leasing programs also provide the following benefits over purchasing including: 

•  Cash flow savings in the initial year; and

•  Enhanced safety features and better fuel economy. 

Staff received quotes for two types of sedans: the Kia K5 and the Nissan Altima.  The leasing cost for five sedans will range between $24,503 to $27,490 annually and will be dependent on the vehicle selected and dealer availability at the time of contract execution. The maintenance program will cost an additional $1,720 annually and will provide all routine maintenance for the sedans. In addition, the Enterprise leasing program allows the City to capitalize on the resale of the leased vehicles by reimbursing the City the vehicle’s resale value at the end of the lease term.  At the end of the lease, the City has the option of rolling the resale value into another lease agreement for a new like-kind vehicle or receiving a lump-sum payment from Enterprise Fleet Management, Inc.

Figure 1 below compares the cost between the Enterprise lease and maintenance program versus the purchase and maintaining the vehicles in-house.  It is estimated that savings of at least $42,000 can be achieved over the five-year term.   After ten years, there might be minor savings if a vehicle were purchased outright, however, staff believes that having newer vehicles with better safety features and fuel efficiency may outweigh the additional cost of $10,275 over 10 years. 

At the end of the five-year lease term, staff will re-evaluate the leasing program, identify actual cost impacts, and determine whether the program shall continue. 

Figure 1: Lease versus Buy Yearly Savings

The total cost of the Enterprise five-year lease and maintenance agreement is a not-to-exceed $146,050 or $29,210 annually. Funds to lease the vehicles are available in the Fleet Maintenance budget; maintenance cost will be incorporated in the operating budget of the user departments starting Fiscal Year 2021-22.

It is recommended that the City Council:

• Approve the Master Equity Lease Agreement and Maintenance Agreement with Enterprise Fleet Management, Inc., for the lease and maintenance of five sedans; and
  
  
• Authorize the City Manager to execute the Agreements and other documents necessary to effectuate the lease and maintenance program.