Full service leasing gives companies a cash flow advantage with the ability to accurately budget with a monthly expense for use of the trucks you need.
By Chris Sample
For those in waste hauling, considering a full-service lease might be the right move. It can save capital outlay since you just pay for the use of the equipment—you do not own it—plus the company you lease from can handle all the maintenance on the equipment. Here is what to consider.
Full Service Leasing Versus Truck Leasing
When explaining full service truck leasing it is best to separate the two topics—full service and truck leasing. Full service leasing speaks to being a one-stop shop for everything maintenance related and having a maintenance management system that pays for all wear and tear items for a monthly fee. Essentially a full-service program guarantees all repairs to your truck other than driver abuse. Many businesses today want to focus on their core competencies and unless that core competency is managing a fleet of trucks, leasing is a very competitive option by using economies of scale and choosing a leasing company that is familiar with the trucks you operate.
While full service speaks to maintenance, truck leasing speaks to the mode of financing. Many companies who own equipment do not have a truck lifecycle strategy nor do they have the experience to sell their old equipment in an efficient way to maximize the residual value of older equipment getting updated. Many businesses were hurt by low residual values as recently as 2016 and 2017 and leasing programs place residual risk squarely on the lessor. Leasing helps alleviate your business trying to predict what a truck will be worth when it is time to sell. As technology changes so does the residual value. For example, a 10-speed manual transmission is becoming less popular with new drivers—they want or need an automatic or automated manual transmission (AMT). So, residual value on a 10-speed could be impacted.
When owning trucks, a business needs to decipher whether they want to depreciate down to zero or try and predict the residual market years down the road. Average fleet age is important. Old equipment comes with higher maintenance expenses, lower fuel economy, lower driver retention and potentially a lower residual value by not selling at the right time. Leasing companies eliminate the residual risk by taking back the equipment at the end of the term and allowing the organization to simply pay for use of the vehicle.
The Benefits of Full Service Leasing
Forecasting accurate transportation expenses with a fleet of vehicles is critical and can be very time consuming. Most do not have the experience nor fleet size to develop any meaningful data to predict truck maintenance expense accurately. Full service leasing gives companies a cash flow advantage with the ability to accurately budget with a monthly expense for use of the trucks you need. The lease payments also can start with a $0 down payment, which protects capital to invest in areas of a business that create more revenue and profit. For most businesses, trucks are simply expensive tools that depreciate in value; they do not assist in growing your business. With the price difference between ownership and leasing, many will benefit by keeping capital in an interest-bearing account versus purchasing a truck.
The operational benefits of full service leasing are the ability to focus on core competencies. Companies want to attract the best drivers they can and drivers want a truck that is comfortable, safe to operate and well maintained. It is important to keep up on regulations and litigation risks, so have help with safety meetings and know who is maintaining your truck. Between regular services, damage, tires, tow companies, warranty work or fulfilling the need for an additional/ substitute vehicle, leasing means you can limit the number of calls, relationships and billing that your organization sees. Having one person/organization to help you with transportation eliminates a lot of wasted time that could be focused on growing your business profitably.
A true full-service truck lease is an operating lease that covers all but the driver, fuel and insurance (driver abuse/damage). If any component of a truck fails over the road, the full-service leasing provider is responsible for getting the truck to the dealership and getting it repaired ASAP. Many leasing organizations will work with you to design a program that works specifically for your operation. If there are services that a customer would rather continue to handle on their own, a lease can be tailored to fit the customer’s needs.
I like to review how people are motivated both in management as well as a personal consumer. Leasing companies make money by keeping your trucks out of the shop and on the road. The training that gets invested into technicians make them the best in what they do. Upselling is never something you need to worry about in a full-service lease because the priority in a full-service lease is to provide uptime, which lowers the overall expenses to the leasing operator whom is responsible for all repairs. Full-service leasing is a partnership where both the customer and leasing provider can make maximum profits by having trucks not in a shop. Normally when one chooses ownership, the maintenance provider does not have that same motivation in mind.
Is Full Service Leasing Right for Your Business?
Leasing certainly is not one-size fits all. A business should review all maintenance expenses including management/personnel labor in addition to all current maintenance invoices. When you own a truck there are several strategies to maximize your profitability. You need to have a trusted advisor in tires, PM maintenance, engine work, transmission work, damage—including windshields—and someone at the dealership to make sure you perform all campaigns or recalls. In addition, you need an administrator to keep all your records for every truck including all repair invoices, licensing, fuel tax reporting, insurance and having a fuel strategy to ensure you are not wasting money over the road with a higher cost of fuel. Knowing the true expense of operating trucks is a great way one can evaluate if full service leasing makes financial sense. If you are reading this and realize you do not know your true transportation costs, you are not alone and talking with a leasing professional might help you figure out that data by starting you on a maintenance program. Having one trusted organization responsible for handling your fleet is attractive. With time being your most precious resource, many companies today choose to outsource managing their fleet.
Implementing a full-service lease is quite easy. Sit down with your vendor and discover your true needs and ensure you have the right spec with a truck that meets your every need. Whether it is a complicated solution, taking into account multiple axles and weight challenges, or transfer dumps, to a more basic every day truck, a truck and a solution can be specifically tailored to the needs of your business.
Chris Sample is Director of National Accounts for the PACCAR Leasing Company (PacLease) (Bellevue, WA). He has been with PACCAR Leasing for 4 years and has more than 16 years experience in the transportation industry. PacLease provides Kenworth and Peterbilt Class 8, and medium-duty trucks in full service leasing programs. Trucks are spec’d to match customer requirements. For more information, visit www.paclease.com.