LEASE OR BUY?: There are advantages to both leasing and financing.
DALLAS, Texas – Every trucker needs a truck.
But not every trucker goes about getting a truck in the same fashion and there are many schools of thought as to which route is better: leasing or financing.
“If cash is plentiful, buy; but if cash is not plentiful, use someone else’s money,” advised Ron Bredemeyer, of Bredemeyer and Associates, a Texas-based transportation consultation and litigation support firm. “Which is mostly true.”
Bredemeyer has spent 50 years in the trucking business. For more than 30 years he worked for a fleet which operated 5,500 pieces of equipment; and it was his responsibility to oversee everything to do with the equipment, from purchasing to the repairs.
During the 1970s, Bredemeyer and his fleet were purchasing hundreds of trucks and hundreds of trailers every year; and paying up-front, mostly because there was an abundance of cash flow.
Today however, the landscape of the trucking industry has changed and there’s not always readily available cash.
“We’re trained to think now that I can afford anything if I make the payments, but that’s not always a smart move,” noted Bredemeyer.
So before deciding how to purchase a new vehicle, it’s important to decide if there should be a purchase.
“Older vehicles should be replaced when the cost to operate and maintain them is higher than the costs to operate and maintain a new vehicle,” said Bredemeyer. “We actually had a formula in the computer and when trucks reached a certain point we knew it was cheaper to get rid of them and operate a new one.”
Some of the major factors to consider, when determining the cost of operating new and old vehicles should include: the principle and interest of the vehicles; the operating costs of the vehicles; the resale cost of the old vehicle; incentives for the new vehicle; and strategic plans for tomorrow.
“What do you intend to do in two months or five months, or 10 years from now?” asked Bredemeyer. “That should have some consideration into how you buy trucks today.”
If an operator decides to lease a vehicle, Bredemeyer noted it’s important to pay close attention to the turn-in conditions. In the contract there may be stipulations regarding costs to tires, bumpers, mirrors and windows, and mileage.
“The other disadvantage in leasing is, at the end you get nothing and there’s no equity,” added Bredemeyer. “Be very careful, it is often very difficult to determine the true interest and finance charges. I’m not saying leasing is wrong; you just have to be careful about what you’re really paying for. This is a case where you’ve got to read the fine print.”
Whichever route an operator decides to use when purchasing a new truck, it’s important to have a realistic grasp of what will happen to the truck at the end of its life cycle.
“You have to calculate in your mind, whether you’re leasing or buying, what could I sell it for in five years?” stressed Bredemeyer. “Don’t let a salesman or someone talk you into a situation that is not good for your company; know what’s best for you.”
To fully understand buying power, an operator needs to analyze a number of aspects, including all related costs, interest rates, the company conditions, the cash flow and the benefits of each method.
But most importantly, before heading to a dealership, make a decision.
“There are two philosophies: buy the cheapest truck you can and return it at the end of the warranty; or buy the highest quality truck and run it until it no longer works,” said Bredemeyer. “After all the analysis is done it all will probably come down to whether you have the money or not.”
The finer points of leasing and purchasing
* No up-front money tied up except for the first lease payment;
* Allows updated technology with lower operating costs;
* New equipment means lower maintenance costs;
* Monthly lease payments are direct write-off on taxes;
* Fixed monthly costs: all costs built in;
* Can get maintenance contracts;
* No resale costs;
* No equity at the end of the lease.
* Pride of ownership;
* Know the finance costs up front;
* Personal specifications;
* Variable operating costs;
* Depreciation: non-cash expense can use various lives based on operations;
* Better resale value, profit from good maintenance;
* Control of trade cycles, flexibility.
– Presented by Ron Bredemeyer, Bredemeyer and Associates