Frequently Asked Questions (FAQs)
Q: Why do so many companies, large and small, lease
A: Companies who do not analyze the differences between ownership and leasing
thoroughly enough may arrive too soon at the conclusion that ownership
is less expensive. MAYBE - MAYBE NOT. The keys to an accurate analysis
lie in 2 areas: Understanding Leasing and Knowing What Your Real Costs
of Ownership Are.
Q: Why do businesses lease trucks?
A: Why would someone pay a healthy fixed and mileage charge every month
for 48, 60, 72 or even 84 months and at the end of that time have no equity
in the vehicle? On the other hand, maybe it makes sense to pay someone
for the use of a vehicle for 48, 60, 72, even 84 months; someone who
will help you custom design that vehicle to fit your operation, someone
who will maintain it, license it, wash it, repair it, replace its tires,
handle road service, compile and file fuel tax returns, provide forms
and maintain DOT required vehicle records, conduct a safety program for
your drivers, provide a replacement vehicle if it is out of service for
mechanical repair, assume the risk of poor resale at the end of the term,
and do it all for a fee that is 100% tax deductible.
Q: Who leases trucks?
A: The types of companies that usually lease trucks have certain general characterics
in common. In no particular order, they are:
- CRITICAL DELIVERY REQUIREMENTS - One of the reasons companies lease
is to assure themselves and their customers uninterrupted transportation.
If your product has to move every day, has to be delivered on time -
consider leasing your trucks.
- THE NEED OR DESIRE TO MAINTAIN A HIGH DEGREE OF CONTROL OVER DISTRIBUTION - If you want YOUR drivers delivering YOUR product to YOUR customers,
a Full Service Truck Lease allows you to have this degree of control
without owning the trucks and taking on all of the responsibilities
that go with it.
- A DISTRIBUTION OPERATION THAT ENCOMPASSES A LARGE GEOGRAPHIC AREA - A Full Service Lease provides access to road service vendors, fuel
stops and substitute vehicles nationwide, 7 days a week.
- COMPANIES THAT WANT TO RUN LEAN OPERATIONS WITH PEOPLE AND CAPITAL
FOCUSED ON THEIR PRIMARY BUSINESS - Many companies acknowledge the fact
that they are not experts in the design, acquisition, maintenance and
management of trucks. By relying on a leasing company for this expertise,
they preserve their own resources, human and other, for their main business
Q: What financial considerations are involved in
- FINANCIAL PURCHASING POWER - Leasing companies, even small, local ones,
are usually members of affiliations that purchase hundreds or thousands
of trucks every year. A lease gives you access to that purchasing power.
It enables you to acquire high-end equipment that you may not have been
able to afford otherwise. Well spec' d trucks attract good drivers. If
you perceive yourself as a quality supplier in your industry, your trucks
should reflect this. (Ever see an old, dirty truck delivering perishable
food to a restaurant or super market?) (If you answered yes, do you still
eat or shop there?)
- BALANCE SHEET MANAGEMENT - A lease need not appear on your balance sheet,
improving your financial picture by conserving operating capital and freeing
it and your credit lines for inventory, expansion, etc.
- TAX TREATMENT - An operating lease is 100% tax deductible. Multiply
the annual cost of the lease by your normal tax bracket percentage and
see what you save.
- FLEXIBILITY - There are a variety of lease structures that allow the
lessee to customize a program that addresses specific needs and requirements
- cash flow, budget, cyclical, seasonal, etc.
- IMPROVES FINANCIAL RATIOS - Leasing means less liability on your balance
sheet and thus a better ratio.
- LOWER INITIAL COSTS - Leasing usually requires no down payment - just
the first month's lease payment. Also, items such as sales tax (in many
states now payable in full at the initial titling of the vehicle) and
annual license costs are included in the monthly lease rate. (If you currently
own 10 tandem axle tractors with IRP plates you're making a lump sum payment
of about $14,000.00 each year. Under a Full Service Lease, you would pay
$1,166.67 per month instead.)
Q: What operational considerations are involved in leasing?
- BREAKDOWNS - If you own your trucks and one goes down on the road, who
handles the breakdown? Someone at your company must take time to manage
the breakdown; find a vendor who can handle it, follow up for completion,
arrange payment, etc. What if the truck isn't drivable? Who makes the
arrangements for a replacement vehicle to deliver your load? What if the
breakdown occurs when your office or shop is closed? Handling a breakdown
can take hours of management time and cost big money. If your truck is
leased, it usually takes one phone call and your lease payment covers
- SAFETY - If you own, who keeps up with DOT regulations and monitors
compliance? Do you conduct regular Safety meetings with your drivers?
- SPECIFICATIONS - Before you purchased your trucks, did you consider
all of the operational factors around which a truck should be built: payload
capacity desired, terrain traveled, gearing for optimum operation with
optimum fuel economy, loading and unloading issues; do you need a liftgate
(tuckaway or rail lift) or a ramp? How about a side door? Do you travel
in areas with low clearances? off road? If you load with a forklift, how
high is the boom? How much is each additional pound of payload worth?
Compare this to the cost of weight saving options such as aluminum wheels,
- MAINTENANCE - Who does your maintenance now? Who tracks PM currency
and required Federal and State Inspections? Do you know that some insurance
companies give a discount if you can document a formal maintenance and
safety program? If you think you've negotiated a great hourly rate with
a local service provider do you have someone in your organization knowledgeable
enough to know what reasonable time allowances are for various repairs?
If you have your own shop, how do you ensure you're getting the best price
on parts, tires, lubricants, etc.? Do you know your cost per mile? Do
you know your cost of compliance with EPA regulations? Are you up to date
on EP A regulations?
- MANAGEMENT TIME - If you own trucks, someone in your organization must
handle all of the issues mentioned in the foregoing list of Operational
Considerations. Very often, that someone has to do this as a collateral
duty. How much time is it taking from that person's or persons' main job
Q: Is leasing for me?
A: Before you decide that ownership is less expensive
and more efficient than leasing you must be able to identify and quantify
your real costs, both visible and hidden, in all of the foregoing areas.
It's not easy, but Bowman Truck Leasing can help. Call us at 800-760-7850
to discuss your options.