Part II: The ins and outs of truck leasing

“When I first started at Dart Transit, and that’s going on 24 years, I had my own truck but it didn’t work out,” says Minneapolis-based owner-operator Harry Zander. “I drove for another guy until 1984 when Dart came up with their lease-purchase program. I had the 28th truck they put into that program. We had an option to either re-lease at the end of the lease, or finance through them or an outside

“When I first started at Dart Transit, and that’s going on 24 years, I had my own truck but it didn’t work out,” says Minneapolis-based owner-operator Harry Zander. “I drove for another guy until 1984 when Dart came up with their lease-purchase program. I had the 28th truck they put into that program. We had an option to either re-lease at the end of the lease, or finance through them or an outside source and buy it. That’s what we did. We got outside financing and bought it after leasing it for three years. “I was able to get back into my own truck and the truck they had spec’ed was actually a very good truck,” he continues. “ We did very well with it and I was able to buy it after three years and I’ve been really good since then.” Zander says he believes programs such as those offered by Dart are “excellent” for drivers wanting to get into their own truck. But he says he wouldn’t go back to leasing after owning his own trucks for a number of years. “It’s not because it’s a bad deal, it’s still the best way for guys to get into [trucking] who don’t have the financing or don’t have the credit rating. But a lease-purchase truck is not a truck like I have now. There are not a lot of options. They are well spec’ed out as far the necessities, but I have more options on the truck I drive now.” He contends that another downside is a lease-purchase ties you to a carrier. In most cases, motor carriers operate a separate leasing entity to handle their lease-purchase programs. “I think it takes away a little bit of independence of being an owner operator. You are not totally independent that way,” remarks Zander. Of course, the terms of the lease are important. “I hear from some guys with other companies that they have to work awfully hard to make it work,” Zander observes. Highway Sales, St. Paul, MN., has been in the truck leasing business for 20 years. Working primarily with Dart Transit, the company was formed in 1984 in response to trucking deregulation, says John Seibel, Highway Sales president. “Many, many owner-operators went out of business after deregulation in 1980 because many, many motor carriers went out of business,” Seibel says. Since Dart is 100% owner-operator, the goal had to be creating more owner-operators. “We take people who may not have the best credit in the world but have a pretty good work history and they can get through the program and develop better credit so they can get financed by a bank or a finance company,” says Seibel. “Our vision is that they eventually own the truck. We figured that if we made the program workable for the contractor, it will teach them how to be better business people and it will increase the size of Dart’s fleet.” Seibel estimates that in the last 20 years the company has put between 3,800 and 4,200 truckers into their own trucks. He says leasing a truck from Highway Sales and other similar companies can be a good deal for a driver wanting to become an owner-operator, since he or she can get into a truck for less than buying retail. “We currently have 2004 Freightliner Columbias with 70-inch raised roofs that we can get to a contractor for $83,700,” Seibel says. “That’s somewhere between $10,000 and $11,000 less than if he bought it retail. So instead of getting a payment of about $2,200 a month, there’s a step-down payment schedule of $1,755 the first year, $1,655 the second year and $1,547 the third through fifth years. After the 60-month lease, the contractor can finance the 15% balloon payment due, opt out of the program or trade for a new truck. We guarantee to finance the balloon at two percent over prime,” Seibel notes. The key factor in looking at such programs, Seibel says, is the monthly payment. “Once you get past about $1,900 a month, your income diminishes. You have to attain more and more miles just to keep the same income. You can get into a payment that the miles are impossible to attain.” Other things to watch fro include the amount of cash you have to have to start the program, and if the company is reputable The Owner Operator Independent Driver Assn. (OOIDA) says their membership has had several problems with lease-purchase programs over the years, some of which resulted in federal lawsuits. “For the last several years there have always been lease-purchase programs in the industry,” says Todd Spencer, OOIDA executive vice president. “And there have always been abusive lease-purchase programs.” Spencer says the number of carriers developing such programs was a response to the used-truck glut that plagued the industry a few years ago. “There are more now because not that long ago, there was a glut of used trucks on the market and nowhere to go with them. That caused many carriers to start lease-purchase programs.” Horror stories include drivers losing their trucks because the motor carrier went bankrupt and the equipment was repossessed. Or drivers have missed a payment and had their truck repossessed. That’s a real concern for drivers, says Gary Green, business services manager for OOIDA. “Most of the lease programs are tied to the motor carrier, so that if for some reason freight gets slow or something and you can’t make the payments, they can pop the truck and you’re out of there.” But the programs are growing at a number of the larger motor carriers and leasing obviously works for some drivers. “We have guys at Dart that wouldn’t do it any other way,” says Seibel . “They turn in the old ones at the end of the lease and re-lease another one. It works for them.” But if a driver has the money saved for a down payment and the experience to succeed as an owner, buying outright is generally considered the best way to go. It takes much more money up front and much better credit, but there are a number of benefits to outright ownership. Generally, there are greater tax advantages to buying the truck, but each driver’s situation can be different and only your accountant can advise you for sure on this score. OOIDA’s Green advises prospective truck buyers to establish a relationship with their local bank before going to a truck lot to find a truck. “The best way to do it is through your hometown bank. You want to avoid getting your financing through a dealership’s captive finance operation. “If you are going to buy a truck, already have your financing lined up and then negotiate your best deal,” he continues. “And don’t tell them you have the financing until you’ve agreed on a price.” Either way a driver approaches truck ownership, probably the most important thing is to approach the decision in a business-like fashion. “Many of the people coming into the industry now have no idea what truck drivers or owner- operators are all about,” Green says. “And there’s a distinction there. First, operating the equipment is one thing. Being a business person is an entirely different thing.” Owner-operator Zander says having the money saved for the down payment is just the first step toward truck ownership. “I tell guys all the time, ‘You have to have credit.’ Otherwise you can’t do anything.” Then, you have to have money to fall back on. If you’ve got the down payment, you still need to keep money [aside] for operating expenses. I can’t imagine strapping yourself with a whole truck payment like that and not having something to fall back on.” Even with a truck warranty that pays for breakdowns, operating cash is “a real necessity,” Zander says. “You have to have something to back up on. Even though you’ve got a warranty on the truck, you don’t get warranty on downtime. You’re digging out of your pocket because nobody’s going to cover your downtime.” Zander speaks from experience as a truck he had five or six years ago came from the factory with “lemon written all over it,” he says. “It was in the shop every time I turned around. But I had money to fall back on so I didn’t’ go bankrupt or anything.” Whether you buy a truck outright or opt for a lease-purchase plan through a motor carrier, the secret to trucking success is the same as everywhere else: work hard and work smart. And the old hands will tell you the smarter you work, the less hard you have to work to be successful.

Part I: To lease or not

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