Should I buy or lease a new tractor?

Owning your machinery has long been the tradition in Ireland, but that trend has started to change, with many dealers offering very attractive options for long-term leases on not just tractors but machines also.

On a couple of occasions I have worked the figures back and forward on lease versus ownership and there is very little in it. One of the telling points when deciding between lease and ownership is the amount of hours you will put on a tractor in a year.

Over Christmas, we changed our 120hp 2007 Deutz to a Fendt 716. The Deutz was a very good tractor for us. It had a very high specification with air cab and axle suspension, front links and PTO, profiline spec and a few other additions. However, in the end the power required to drive front-mounted implements while powering a harvester on the back became too much for the Deutz at 120hp.

We will put 1,000 hours on a tractor in a year – this is generally the limit for a one-year lease. In our case we had an option to lease a 200hp tractor long-term at €14,000/year with a maximum of 1,000 hours. This machine would have cost us €14/hr before fuel and labour.

The lease option had a lot going for it. It was a flat rate that could be budgeted before the year started. We would have had no maintenance cost which we would budget at around €1.50/hr, no tyre cost which we budget at €1/hr, the lease is tax-deductible, and at the year-end we could change the machine specification, horsepower or type with no hassle for the following year.

The figures on ownership are a little more complex. A number of factors come into play – depreciation, appreciation of the new tractor you will eventually trade against, tyres, maintenance and finance interest. The term of ownership is also important. I like the idea of running a machine for seven years or 7,000hrs. With a big chunk of depreciation as you drive off the forecourt, it’s important to get some value out of the machine when the depreciation starts to level off in years three to seven.

On the basis of my own calculations, holding a 200hp tractor for seven years and then trading against a similar new model, allowing €2.50/hr for tyres and maintenance, 2% for new machine appreciation (new tractors always increase in price), depreciation of 15% in year one and 12.5% for years two to seven, ownership cost in our case would have been a few cent over €14, almost the same as long-term leasing at €14/hr.

These figures don’t allow for finance charge, which can run anywhere between 0% and 8% depending on who you are with. One key point in those figures is the 1,000 clock hours per year. Drop this back to 500 hours, which is common, and the ownership figure goes up to €25/hr and the leasing figure becomes €28/hr. Therefore, the decision to buy or lease is very much made on a case-by-case, farm-by-farm basis.

The 716 Fendt which we bought was financed over seven years. In the case of this machine, leasing wasn’t an option – we needed a vario with front links and PTO and some other spec options that aren’t generally available on lease machines.

If in the future we need to bring in something more basic for general field and road work, we would look very hard again at the figures and if they were similar, would most likely go with a long-term lease as it would give us a lot of flexibility and take a lot of risk off the table. We have a relatively small farming operation and don’t carry many tractors like a contractor would. However, we still put enough hours up to make the lease option viable.

If we were not putting big hours up and were happy to hold a tractor long after seven years, the ownership option is attractive as the depreciation levels off.

The other option that is always open is good secondhand machines. The difficulty is they are hard to find when you want one.

For certain models and years we would be more than happy to go that route if we look to add another machine in the future. The likes of the 10 series John Deeres, especially a 7810, or the DX range of Deutz tractors would be welcome additions to most farmyards.

For the moment, we will let the 716 settle in, short-term hire where needed to supplement what we have and use some very good local contractors that we get on very well with.