Truck News


Funding formulas

DON MILLS, Ont. - Anybody who has ever watched late-night TV has probably seen the guy who claims to have made millions of dollars by buying real estate with no money down. While that approach might w...

TIRE KICKIN': Make sure you explore all of your options before buying any iron.
TIRE KICKIN': Make sure you explore all of your options before buying any iron.

DON MILLS, Ont. – Anybody who has ever watched late-night TV has probably seen the guy who claims to have made millions of dollars by buying real estate with no money down. While that approach might work in the real estate business, you’re not likely to find anyone willing to hand over the keys to a $150,000 highway tractor with no strings attached.

Luckily, you don’t necessarily need to be rolling in money to get your hands on the wheels you need. With some kind of down payment and a reasonable credit history, you can usually finance or lease your way into the equipment you want without much trouble.

If it’s a brand new truck you’re after, financing is probably going to be your second consideration after you decide on a make. According to John Murphy, sales manager for Sheehan’s Truck Centre in Burlington, Ont., the ideal new truck buyer is generally not a first-time owner/operator.

“Ideally, it’s a homeowner, someone with a good credit history,” Murphy says. “If all those things are in place, the down payment could be as low as five or 10 per cent. But if you are missing one or two of those things, (the down payment) could go to 25 per cent pretty quickly.”

But given the current slowdown in the economy, and in the trucking industry specifically, the big finance companies have begun tightening the purse strings, Murphy says. Many owner/operators and smaller trucking companies are having trouble making their payments these days, he says, and the finance companies are making many more repossessions than they would like.

“There’s no question the whole market is depressed,” says Murphy. “Guys who might buy a second or third truck and put a driver in it are not doing that now, and would-be owner/operators are staying away. Everyone is having a hard time making ends meet, so the type of credit the finance companies are seeing now is not as good as it was a few years ago.”

Finance rates today generally run from about 8.5 or nine per cent for top corporate clients to as high as 11 or 12 per cent with “tough credit”, says Murphy. Financing rates on used vehicles are usually two to three per cent higher.

Dealerships usually arrange financing through one or two big finance companies or banks, or through the truck manufacturer’s finance division. But if you prefer to shop around, there are loan brokers out there who will canvas the market for the best pre-approved financing package for you.

Like every other service industry, truck financing has even moved on to the Internet. Just last month, opened for business on the Web, offering on-line financing application and approval.’s target customers, according to company president and chief executive officer Robert Klein, are less-than-truckload fleets and owner/operators. Given the trucker lifestyle, Klein says, Internet financing seemed to be a logical fit.

“Truckers use the Internet all the time now,” says Klein. “They use it for long-distance communication, for weather and road conditions, for E-mail. Our research showed that 54 per cent of truckers now travel with laptops, and most of the big truck stops are offering Internet portals. The financing business has traditionally been a 9-to-5, Monday-to-Friday proposition. But the Internet isn’t like that.”

On-line financing is certainly nothing new. According to Klein, some 50 per cent of new car buyers today at least shop for, if not arrange, their financing on-line.

Through the site, prospective equipment buyers can check out various lender rates and even price out sample financing scenarios. By using the cost-effective on-line delivery method, Klein says is able to offer finance rates three-quarters of a point to 1.5 points lower than a buyer would typically see at a dealership. Another attraction of the service, he says, is the freedom it provides.

“Lots of dealers are running their finance department as a profit center these days, and they will try to set up the deal that is best for them,” Klein explains. “We find that most people don’t like to deal with the high-pressure sales approach they sometimes get at the dealership. The Internet can insulate them from that and give them more options.”

If a putting together a big down payment is a problem, and the monthly payments on a new truck purchase don’t fit in to your cash-flow projections, leasing the equipment you need may be a better option to explore. In a lease-to-own scenario, a residual purchase value for the vehicle is determined at the beginning, while the remainder of the current value is spread out over the term of the lease in the form of monthly payments. At the end of the lease term, usually four or five years, the vehicle can be purchased for the agreed-upon residual price.

Bruce Barber of Kitchener, Ont.-based Roirdan Leasing says many owner/operators and small fleets find the lease-to-own approach attractive because it doesn’t require as much up-front cash to obtain either a tractor or trailer.

“It still all depends on credit, though,” Barber says. “If the customer is running a good operation and has a strong credit history, they can get into a lease with as little as first and last month down.”

There are a number of advantages to the leasing approach, Barber says. First of all, taxes on a lease are not paid up front, but are incorporated into the monthly lease payment. Second, depending on the residual value of the vehicle, monthly lease payments are usually lower than with a straight purchase. The lessee can also show their monthly lease payment as an operating expense.

“But that is only if the residual is reasonable,” cautions Barber. “If you put down a $1 residual, the government won’t consider that a reasonable buy-back.”

On the downside, some lessees are now finding themselves in a corner due to the soft trucking market. A few years ago, when the industry was booming, many truckers signed on to leases with high residual values because they wanted to keep their monthly payments down. Now those leases are running out, and the lessees are faced with paying a high residual price for a vehicle that is worth a lot less now than it was before there was a glut of used vehicles on the market.

Finally, if ownership is not your goal, you might want to consider a full-service lease. Unlike a lease-to-own, the full-service lease is more like a long-term rental agreement where the customer has no intention of buying the leased equipment. While the monthly payments on this kind of lease are higher, there are also a lot fewer headaches involved.

“If you are buying a piece of rolling stock, there are a lot of things to consider,” says David Winkelman, vice-president of Rollins Leasing Company of Canada. “First there is the financing. Then there is the ongoing maintenance. And finally, there is the administrative cost, which a lot of people don’t factor in – things like arranging licensing, insurance, fuel tax reporting, etc. With a full-service lease, you get all of those things for one monthly price.”

Typical full-service lease customers are manufacturers or distribution companies that prefer to operate their own small truck fleet rather than outsource their transportation services. “Someone who needs anywhere from one to 100 vehicles, five or six days a week, to run delivery routes,” he adds.

He says most of his customers lease between one and five trucks.

The two main reasons some companies take the full-service leasing route, Winkelman says, are “predictable cost and reliable service.” Because the truck belongs to the leasing company, if it breaks down, the customer simply takes it in and gets a replacement.

As an added incentive, Rollins offers wholesale fuel prices to its customers at many of its yards across North America, as well as a general maintenance inspection service and an unlimited washing program.

“We want to touch that truck every day if we can,” Winkelman says. “It’s our truck, and it’s in our best interest, as well as our customer’s, to minimize downtime.” n

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