How to finance your vehicle fleet in North America
Financing your fleet vehicles in North America (United States and Canada) is different than its neighbors to the South (Latin America) and much of this is influenced by the larger number of options in North America as well as lower interest rates and the willingness to take on residual risk.
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While the benchmark interest rate in the United States and Canada is only 0.25%, the best rate found in the largest automobile markets down south is in Colombia which is 3%.
Of course, expect a few more percentage points to be added on top of these to allow for bank margins and keep in mind that rates are likely to increase this year (2022) in North America considering inflation pressures.
In terms of brands that are up for financing, unlike their neighbors to the South, pickup trucks are very popular in both the United States and Canada.
While the best-selling brands overall in the US are Toyota, Ford, Chevrolet, Honda, and Nissan, they are Ford, Toyota, Honda, Hyundai, and Chevrolet in Canada.
Regarding models, the hottest seller in both the US and Canada is Ford F-Series pickups (mainly Ford-150). They are followed by the Ram Pickup, Chevrolet Silverado, Toyota RAV4, and Honda CR-V in the US, and the Ram Pickup, Toyota RAV4, GMC Sierra, and Chevrolet Silverado in Canada.
2022 Toyota RAV4, best-selling SUV in North America (copyright: Toyota)
Besides the region’s largest banks such as Ally Bank, Wells Fargo, Chase and Capital One in the US, as well as Royal Bank Canada, Toronto Dominion and Scotiabank in Canada, some of the most active OEM financers in the region are Ford Motor Credit, Toyota Financial Services, Nissan Infinity Financial Services, Honda Financial Services, and Chrysler Capital.
Meanwhile, another vehicle acquisition option is getting your vehicles through a multi-year rental contract with a vehicle leasing company. There are many players in the region and most of them also provide fleet management services today.
Not only does outsourcing management services free up your time to focus on your core business, there is usually no need to deal with maintenance, insurance, and vehicle tax burdens. In the end, you can achieve significant cost savings if you find the right partner, meaning a leasing company that has multi-country leverage as well as local expertise.
As for best practices in the region, open-end agreements are generally more popular in North America, unlike the close-end leases which are more common in regions such as Europe.
While many fleet managers are attracted to open-end leases in North America as they have more flexible terms, closed-end leases could give procurement experts more peace of mind as they do not need to deal with vehicle depreciation risk. This really depends on the market mindset at the time.
Another thing to keep in mind in North America is that fleet is primarily used for work vehicles such as pickups and vans. Fleet for benefit cars does exist but to a lesser extent than what can be found in other regions of the world such as Europe.
In terms of flexibility, North America is quite business friendly in most cases, and this goes hand-in-hand with the changing business needs of today. Besides more people working from home, there is a lack of supplies in the market (raw materials, semiconductors, vehicle models) so being adaptable is key.
Besides seeking adjustments in mileage (kilometer) limits and contract duration (extending or early termination), some fleet managers are also looking at the possibility of having a substitute car or complementary mobility services or even a pay-per-use model.
One strategy to keep an eye on today is shorter-term subscription (month-to-month) services, especially if cash flow is low and you have no funds for vehicle financing down payments.
With this option, you usually avoid the cost of vehicle maintenance and liability insurance and receive 24/7 roadside assistance. However, make sure you calculate TCO (total cost of ownership) appropriately before making such a decision, something that could be reduced through multi-month contracts.
Depending on the vehicle, a subscription could cost in the range of US$600 per month and allow for some 2,000 miles of driving. In the US, it is expected to be a multi-billion-dollar market and is seen representing some 15% of total new car sales by 2030, according to Boston Consulting Group (BCG).
Besides subscriptions being more commonly offered by OEMs nowadays, this service is offered by long-term vehicle leasing companies as well as shorter-term rent-a-car agencies in North America. Among the main players include ARI, Donlen, Element Fleet Management, Wheels Inc, LeasePlan, Enterprise Fleet Management, Hertz, Sixt, and more.
Finally, we need to point out another flexible option which is renting a vehicle for shorter periods to test out new powertrains such as electric vehicles (EV) and hybrids. While month-to-month contracts could be an alternative, some companies offer weekly, daily, or even per-minute rental options, interesting ways to get a feel of EVs.
Among the newer companies offering this type of service – many of which are online and mobile app based - in North America are Autonomy, Fair, Borrow, Steer, Free2Move, and many more.