Frequently Asked Questions (FAQs)

Q: Why do so many companies, large and small, lease their trucks?

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 activity.

Q: What financial considerations are involved in leasing?

A:

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?

A:

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 the cost.
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, etc.
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 function?

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.