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Managing assets: Developing a leasing contract

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Evaluating lease contracts, finding the right deal and the right mix of leasing and ownership for a fleet begins with questions: What is the best way to use available capital? What are my fleet’s costs for maintenance and ownership? What information do I need to make that determination? What are the benefits of leasing if my business is trucking or if freight transportation isn’t my company’s core mission?

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Today, there are other questions as well. “Changes in the landscape for leasing decisions include the higher cost of new vehicles and the more complex and costly maintenance requirements for new technology, including those for technician staffing and training,” says John Deris, senior vice president of national accounts at Ryder System. “Regulatory issues, like the impact of hours-of-service regulations on fleet uptime are also more critical while CSA is driving companies to more closely scrutinize their maintenance practices and infrastructures.”

Jeff Spence, vice president of national accounts at NationaLease, agrees that as vehicles become more sophisticated, the capital investment required for trucks, tools and technology could be a stress financially. “The acquisition, training and retention of qualified technicians also represent costs that may be hidden, but are definitely there. The question is, which scenario reduces downtime and leads to higher levels of productivity?”

Ryder fleet leasing

Uptime is paramount

“In today’s competitive world, vehicle uptime is paramount and it makes top-notch maintenance an imperative,” says Lance Bertram, senior vice president, sales, marketing and distribution at Idealease. “Vehicle uptime depends on having trained and skilled technicians and sophisticated diagnostic equipment. Even companies that are the staunchest believers in ownership are considering leasing as they struggle to achieve cost reductions and productivity improvements that help improve the service they deliver to their own customers.”

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Penske Truck Leasing’s Vice President of Sales, Joe King, notes that the skyrocketing cost of equipment due to emissions mandates and model year increases also changes other financial considerations. “While interest rates are low, the higher cost of equipment means you need more capital, which changes the ability to finance purchases as well,” he says. “Financing is a component of purchasing power, but sometimes it’s about access to funding, not just the cost of money.”

“Any leasing strategy should take into consideration not only the financial resources of a company, but also external forces that affect their business,” says Ron Kemm, director of marketing at XTRA Lease. “When it comes to leasing, there are other factors at play. Fleets should consider renting and leasing as part of a sourcing strategy built around making their ability to respond to shipper demands more predictable. Leasing can be a solution to help grow and manage the size and age of a fleet and maintain the right balance at the right time without having to commit to large capital expenditures.”

Penske

Key advantage

Universally, leasing companies and organizations point to the purchasing power they can bring to bear on behalf of customers. “Economy of scale is a key advantage of leasing,” states Ryder’s John Deris. “Our firm control of costs is a core competency that can be applied to vehicle acquisitions, as well as different maintenance offerings leasing companies can provide through a nationwide network. Today, captive locations are one the fastest growing trends in our business, and on-site mobile maintenance facilities can be effective models for fleets with smaller numbers of vehicles.”

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Penske’s King adds that the equipment expertise at leasing companies can be a benefit as well. “As a fleet considers specs, we have experience in ways to reduce costs, drive up productivity and mitigate risk,” he says. “We know the ROI for different choices and we can relate specs to needs for things like driver retention and safety. Additionally, the cost savings that can be realized by partnering with a lease provider should be included. For example, we can ease the administrative burden for access to and visibility into data on fleet operations, HOS and CSA.”

NationaLease, which is comprised of more than 165 independent leasing businesses, has the leverage and resources that smaller companies may not be able to access. Spence emphasizes,“Considering purchasing power for vehicles and the advantage of having a provider with expertise in spec’ing to maximize efficiency is an important part of the thought process.”

Fueling growth

NationaleaseFleet managers face many challenges, notes Bertram at Idealease, which has more than 400 North American member locations. “The rising costs for acquisition, infrastructure and technological investments, specialized technician training, operating costs and regulations can quickly drain capital and credit,” he adds. “Those are resources that are often needed to fuel growth.”

Beyond financial flexibility, enabling companies to conserve capital, avoid risk and control costs. Leasing offers operational flexibility also, relates Ron Kemm at XTRA Lease. He states, “The combination of evaluating financial and operational flexibility, along with weighing the impact of industry capacity and freight trends on the fleet’s business model is what will lead to the best strategy.”

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This column appeared in the February 2014 edition of Fleet Equipment. You can read the entire issue on your phone or tablet by downloading the Fleet Equipment app.

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