What are the best practices involving truck and trailer leasing options? We interviewed people from five companies that lease trucks and/or trailers to the trucking industry with a focus on the small and micro-carrier.
We interviewed the following industry leaders: Greg Maniscalco, vice president relationship manager with Navistar Capital, division of BMO (Bank of Montreal, Financial Group); Jim Lager, senior vice president of sales, Penske Truck Leasing; and Matt Svancara, executive vice president, Aim Leasing Company.
What are the benefits to a small trucking company in leasing their tractors and/or trailers?
Maniscalco: Cash flow improvement (lease payments typically lower than comparable loan payments) due to the inclusion of residual value. Getting newer equipment more frequently, setting the lease term to match mileage/warranty coverages, and avoiding equipment obsolescence and used-equipment value fluctuations. Customized payment structures, and the ability to reinvest cash flow savings back into the business.”
Lager: The customer gets the full benefit of using the vehicle without the exposure of owning it. We provide a very manageable and consistent cost stream when it comes to equipment. They can utilize Penske’s extensive network of facilities and our highly trained technicians for vehicle maintenance, ultimately leasing to better uptime. Our customers can rely on our company to counsel them through a maze of current and emerging regulations. Items include tax reporting, spec optimization, and regulatory compliance.
Svancara: The days of the old-school technician diagnosing a truck by ear are gone. Extremely technical components introduced to trucks over the last decade require specialized training and specialized software for diagnosis and repair. TRALA members spend significant time and money to train technicians for each manufacturer and engine to deal with the technical challenges. When we meet with small fleets, they tell us the most significant challenges are training and software. It’s understandable; the economies of scale a leasing firm can bring to the table make all the difference. There is also a significant increase in turnaround time over dealerships.
What are the standard periods for most long-term leases?
Maniscalco: 36- to 72-month terms available.
Lager: The periods vary by customer, and we typically base the term on the annual mileage a customer would run. Terms range from three to seven years.
Svancara: While leasing terms vary based on equipment type and annual mileage, many terms fall into traditional five-year or seven-year buckets. Just as lease options have increased, options on terms have too. This decision always remains dependent on the annual mileage needs of a customer, but typically [it’s] the economic life of the equipment.
What are the advantages/disadvantages of a longer lease and a shorter lease?
Maniscalco: Shorter leases typically come with higher monthly rental payments. Longer leases tend to exceed warranty mileage limits, i.e., 60- or 72-month terms. Longer leases tend to experience more extensive terms and condition repairs at the time of return, based merely upon the length of equipment usage.
Lager: Advantages to a longer lease [are that] you are fixing your payment stream for a longer time. Trucks are not getting cheaper, and interest rates are not going to decline. You are locking in your payment.
Svancara: A longer lease within appropriate mileage parameters typically lowers monthly costs. In addition, it provides price protection for a longer term. In our experience, the price of a truck does not decrease. Therefore, locking in pricing today for a longer term makes sense for most. Shorter term leases give the customer flexibility to change their fleet mix sooner, but that typically comes with a higher cost on the current lease—and likely higher costs for the next term.
What are the financial benefits to a small carrier’s costs when leasing vs. purchasing equipment?
Lager: A company’s decision to lease or own its fleet is driven primarily by its operations, company culture, and strategic goals. Penske works with its customers to learn and understand their business first. The next step is data-driven. We develop a comparative value analysis of leasing vs. ownership for our clients.
Svancara: Leasing helps lessen monthly payments because the leasing company takes on the risk of the residual value. The customer doesn’t pay for 100% of the cost of the truck. Most bank loans require a portion of the cost down and 100% financing of the remaining balance. In addition, leases typically have longer terms than a typical bank loan on a purchased asset.
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