Note: This information provided from off hand conversations and is not based on confirmed personal knowledge. Counter points and additional dialog from drivers and companies who are or have been used lease purchase options are encouraged. Please contact me.
Prolog: Whiles in truck driving school, I saw numerous advertisements for companies offering lease purchases. Once out of school, I looked at numerous companies’ websites looking for work. I had, at the time, been working for myself for years, and liked the pride of ownership idea. Thus, I strongly considered lease options. However, my finances at the time did not give me the option to consider it. And I wanted a couple years of experience first.
The Theory of Lease Option
One of the allures of truck driving is the independence from the office. While you might have a boss that is looking over your shoulder, it is only electronically. At least as once you have completed any trainee time, and assuming your are not running as part of a team, you will be alone. Very alone at times. If you are running an assigned truck, you get a certain amount of freedom to lay out your stuff in the cab your way. You can, to a point, install extras to make the sleeper area your little domain. If you have a different truck often, you have few options to make it your own.
Regardless, the truck still belongs to someone else. They may have restrictions on any modifications you can do to the truck including mounting of CB radios, TVs or other electronic devices. Another kink is that some companies may limit what you can have in the cab/sleeper. Because of the concerns about excessive electrical loading, some companies will restrict or even prohibit such items as microwaves and refrigerators.
Now, in the event that you own the truck, you have greater freedom to customize and accessorize the truck to you. And the additional of such things as a refrig, a microwave, a TV with satellite, etc., can greatly increase your quality of life while on the road. A lease option gives a driver with less then sufficient down payment and or a blemished credit history to enter into the truck ownership business. Leases, unlike rentals, do include the option for the lessee to purchase the truck at the end of a specific time frame.
Execution of the Lease
Many lease options available to new or newer drivers are in direct concert with the trucking company that will be handling the dispatching and providing the freight that will be used to service the lease payments. While most (larger) truck dealerships and numerous truck financing companies provide truck lease options, they are generally only going to work with drivers with more experience and or stronger credit backgrounds. This relegates many drivers to doing a lease option directly with a trucking company.
This may or may not be advantageous. Well, it will always be advantageous to the company, it is really only a question of if it will be good for the driver/owner.
Here is the problem. If the company already owns the truck, by leasing the truck to the driver, the company basically transfer the obligations for the truck to someone else. The company still controls when and where the truck runs, which loads the truck gets and how many miles the truck works The company in essence still owns the truck, but the payment is coming out of of the driver’s pocket. In the event of slow times, the company can keep it’s own trucks busy or at least busier and let the lease trucks sit idle. After all, the driver is on the hook for the lease payment regardless of if he is working or not.
And since the lessee/driver is responsible for maintenance, the risk of a large repair bill is no longer a concern of the company. When a company has 100s of truck under dispatch, that becomes a large maintenance reserve. Split half those trucks off to leases, and clearly there is less tire replacements, less major and minor maintenance reserves.
Some less then honest (with their drivers) companies, are known to release trucks and trailers after a previous driver has defaulted. This can be easily achieved. During the initial lease years, the company dispatches the driver with plenty of miles. After a time frame, the miles start getting less and less. Eventually, the driver is getting so few miles that they can not afford to maintain their truck payments and have any money left over to take home. After a while, the driver throws in the towel and goes looking for a job with another company. The truck then returns to the original company under the lease, who then can lease it to another driver.
If the company does this a couple of times, it can basically make a profit off of the truck in additional to the money earned from the use of the truck to handle revenue freight. Some companies also add numerous small deductions, with holdings and reserves from the settlement checks that it reduces the net pay far below the advertised per mile or percentages, by as much as 20% or more.
Now, I am in now way saying every company does this or even which companies might be doing this. It is important for the driver that is considering entering into a direct lease purchase with a trucking company to carefully review the contract. Knowing if the truck has been previously leased or not could be a major key to motivations of the trucking company. A lawyer and or accountant should also review your lease before you sign it. And be alert to the end of lease purchase price – it may be so large as to not really be worth it.
Pride of ownership is a great reason to be a lease operator, however, fancy advertising and catchy slogans should not.
Happy Trucking, John