Full-Service truck leasing has become a popular option for companies that run their private fleet but don't want the headaches associated with ownership. It is expected to gain even more momentum, as many companies are looking at leasing for the first time, due to ever changing technology, stricter government regulations, a chronic shortage of qualified truck technicians, and the need for financial flexibility.
“In the past, customers were typically small- to medium-sized private fleets,” says Bob Southern, president of PACCAR Leasing (PacLease), which leases Kenworth and Peterbilt trucks throughout North America. “But today, all types of fleets are discovering the benefits of full-service leasing.
“Companies want to off-load responsibility for vehicle maintenance and emergency roadside service. Additionally, they value the flexibility of substitute vehicles to ensure a high level of uptime — critical for those in a JIT (just in time) operation.”
Southern predicts the trend to full-service leasing agreements will accelerate even faster in the next few years as the complexity of trucks and equipment continues to evolve. It's going to make maintenance and technician training an even higher priority, he says.
“If a fleet is running fewer than 50 trucks, it's going to be increasingly difficult to justify the expense and liability of operating a shop. “Full-service leasing allows a fleet to delegate its maintenance to a ‘partner’ whose job is to make sure equipment is well maintained and running properly, insulating the fleet from unpredictable or erratic maintenance costs.”
Capital management
With a full-service lease, a fleet pays for the use of the truck, as opposed to paying for the truck itself, adds PacLease's director of sales Olen Hunter. “That normally means a big savings — up to 25% less in some cases — in the monthly lease payment, as opposed to financing to own.
“That lower payment preserves working capital, which can be utilized for growth, expansion, or for purchasing additional inventory — all of which typically provide a higher return on investment when compared to purchasing rolling stock.”
Full-service leasing also allows for predictability and protection from the unknown, Hunter says. “Unlike truck ownership, where preventive maintenance and repair costs can fluctuate month-to-month, full-service leasing ensures a constant payment every month. It allows for accurate budgeting and preempts cash flow concerns when a truck faces major repairs.”
From a tax standpoint, full-service leasing allows each lease payment to be 100% tax deductible, he goes on, “and the lease works as off-balance sheet financing to improve key financial ratios. An operating lease can provide substantial tax advantages because the lease is 100% tax deductible over the life of the lease.”
Business challenges
Fleets owning and maintaining trucks must also deal with a growing shortage of qualified service technicians. It has been predicted that 38,000 more technicians will be needed each year through 2010.
“It's no longer a wrench-turning business,” notes Don Porthan, PacLease's manager of maintenance. “It now requires trained professionals proficient in using computers and electronic diagnostic tools.”
For leasing companies, the cost of hiring and training technicians is spread over a larger number of trucks, he says. “Efficiency is in the numbers.”
Fleets also must contend with the challenge of government-mandated environmental regulations. With every passing year, these regulations continue to grow in size, scope, and complication.
“Truck fleet managers are faced with numerous compliance activities that can easily command several hours a day,” says Southern. “This is time that could be better used elsewhere. The outsourcing of maintenance, fuel tax reporting, and other activities frees managers' time for their primary duties and shifts these responsibilities to a third party.”
Owning trucks is a bit like timing the stock market, he says. Hit it right when it comes time to sell used equipment, and a fleet will reap high residual values. If a fleet's timing is wrong, the value of its equipment may be too low to make a move to new trucks.
“Today, we're seeing that fleets are more concerned about preserving the value of their investments,” says Southern. “Leasing is an ideal way to remove the uncertainty of the used truck market from the equation. Plus, a leased truck has a greater chance of holding value because of its maintenance record.”
Given these changing times, it is important for fleets to evaluate all aspects of their business, including transportation. A lease versus ownership analysis can help determine the best fleet strategy for a fleet's specific needs. Most leasing companies have a leasing ROI calculator to help fleets make an informed decision.
