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‚Äôs start with leasing.¬† First a company must understand there are two types of leasing.¬† One being a ‚ÄúFULL SERVICE LEASE‚ÄĚ and the second being a ‚ÄúFINANCE LEASE‚ÄĚ¬†
¬†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 ‚Äď 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 ‚Äď¬† Cost, Cost, Cost ‚Äď 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 ‚ÄúOFF BALANCE SHEET‚ÄĚ 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‚Äôm 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!