Written by: Duane Schaefer, TransChicago Truck Group of Elmhurst, IL, representing Freightliner, Western Star and CONDOR trucks
Many business owners ask should I buy or should I lease a truck. As can be expected, there are PROS and CONS of either option. Let’s start with leasing. First a company must understand there are two types of leasing. One being a “FULL SERVICE LEASE” and the second being a “FINANCE LEASE”
FULL SERVICE LEASES – These are often provided by companies such as Ryder, Penske, or many other local firms. Under this arrangement, a business owner will pay a monthly fee plus a fee for every mile driven by the leased trucks. Leases typically run between 3 to 7 years.
Pros of Full Service Lease – These are very good for a business owner who just wants his drivers to get behind the steering wheel and just drive. This is because the company leasing trucks to you needs to handle all maintenance, repairs and often supplies a replacement vehicle for the times the truck you are leasing is out of operation. You as a business owner have none of the stresses of how to handle breakdown repairs, wondering how long it will take to fix, or how to deliver things with your truck out of service. Also, with your 2 am breakdowns, your driver should be able to call the leasing company to pick up the broken truck and provide a substitute truck while repairs are made.
Cons of Full Service lease – Cost, Cost, Cost – Many people who lease get a rude awakening at the first anniversary of their lease. Most Lease companies built in price increases based on the CPI (consumer price index) that will raise their monthly fees and sometimes the per mile fees. Leasing companies will also charge for repairs considered to be caused by abuse. They consider window rock chips, flat tires, scratches on bumpers, etc to be abuse. Usually the lease companies are slow to replace or fix these items, at extraordinary expense in many cases.
I have had several customers over the years who quit leasing and bought trucks since they discovered it is usually cheaper to own than lease.
I must however admit that one previous customer of mine eventually went back to leasing. In his case, I truly believe it was best for him. Since he manufactured a perishable product that had to be delivered 7 days a week, his trucks were just a necessary evil to him. He and his team were unable to handle the maintenance and repairs. Full Service Leasing was well worth the piece of mind to him so he could concentrate on manufacturing where his profits were actually made at.
FINANCE LEASES: – These are actually VERY SIMILAR to the BUYING of trucks. With a finance lease, a business owner pays a monthly fee for a set number of years for a truck. The business owner however is responsible for all maintenance, repairs, substitute trucks, 2 am phone calls from drivers, etc.
Over the years many businesses used both types of leasing for two main reasons. First, being able to keep their lines of credit open for other uses. Second, being leases were often “OFF BALANCE SHEET” so they did not show up as liabilities on the business owners books.
BUT, this is changing either this year or next due to new accounting standards and rules. Since I am NOT an accountant, please get the proper and legal and CPA advice on what you need to do. With these new rules, lease will often be considered a liability and thus will need to show up on your balance sheet.
With FINANCE LEASES, a business owner can not claim depreciation on their trucks. At the end of the FINANCE LEASE, depending on its terms, you either: (1) own the truck, (2) can buy the truck (3) return the truck to the company who leased it to you.
With these new rules I only see ONE reason for a business or person to have a Finance lease. That would be for religious reasons. Calm down, I’m not here to preach to you. Some people have religious beliefs that do not allow them to pay and/or earn interest. Leases do not have interest so it allows these people to get new vehicles without saving for a long time plus without going against their beliefs. With this knowledge I have sold several new trucks to people who NEVER even considered buying them previously.
OUTRIGHT PURCHASE – Yes, I am almost done. In most cases this is the best choice for a business owner. Think about this, if a company will lease a truck to you, they do so in the hopes of making a profit. Without leasing, you take the middleman out of the picture and have the potential opportunity to earn that profit yourself. Also many times, a business owner could accelerate depreciation of new assets. This could potentially defer income to future years and thus your tax liabilities to future years. Almost like taking an interest free loan.
AGAIN, I AM NOT AN ACCOUNTANT, so please the proper advice from your Attorney and CPA.
With a purchase, you must ask yourself:
1. Do you want those 2 am phone calls when your truck breaks down?
2. Is your team capable of handling maintenance and repairs effectively, in relation to time and cost?
3. Do you have substitute vehicles available for when your primary vehicle is out of service? Fortunately in this situation, Full Service Leasing companies also have short term rental trucks available.
Hopefully this unscientific description will provide you with the questions you need to ask yourself. This should help you make the decision that is best for YOUR NEEDS!