Path of Lease Assistance

Max Kvidera | June 02, 2011

Lease-purchase plans are the only way for some owner-operators to buy a truck. Use a wary eye to assess contract terms and do the math to see if it’s really a smart deal.

Jesse Russell’s first lease-purchase contract in 2005 started out well, she says. But halfway through the final year of the three-year agreement her miles began dropping. Fearful of being able to make her truck payment and pay other bills, she found outside financing to pay off the balance and signed on with another carrier.

“Their lease was set up better and they weren’t in charge of my miles,” she says.

After two years in U.S. Xpress’ lease-purchase program, Roderick Jones opted out of the contract. “Over the last three years, I made pretty good money and saved some,” he says. The program gave him confidence to go out on his own, Jones says, and he plans to buy a truck, finance it through a bank in his hometown of Richmond, Va., and either lease to the carrier or get his own authority.

 A few months into a lease-purchase plan in 2009, George Mills was told his carrier had been bought out and he no longer had a company to drive for. Operating under the same lease-purchase contract, he was referred to another carrier.

“My friend and I thought it was going to be a good deal, but it didn’t turn out,” he says. “The pay was terrible and I was not getting the miles or getting home.” On his third carrier with the same contract, he’s says he’s making good money, receiving a fuel surcharge and getting at least 2,700 miles weekly.

Russell and Mills are owner-operators who learned first-hand some of the pitfalls of acquiring a truck through lease-purchase. While such plans are popular paths to truck ownership, some carrier contracts make it difficult to generate enough revenue to meet payments. Appealing to nascent operators who have few financial resources or bad credit, the contracts often require high weekly payments, maintenance accounts or end-of-lease balloon payments.

Carrier lease-purchase programs generate the most controversy for practices that favor the company at the expense of the independent contractor. Common complaints include mileage manipulation in the latter stage of the contract and unadvertised fees and charges.

Carrier programs with unsavory reputations have been “a stigma to overcome,” says Schneider Finance President and General Manager Steve Crear. The carrier has run its lease-purchase program 16 years. “Our measure of success is not reseating trucks over and over again. [For] a lot of carriers, the measure of their success is keeping their trucks filled, not necessarily with the same person.”

There are two approaches to these programs, says Greg Labrasca, manager of independent contractor and lease-purchase recruiting at U.S. Xpress. “The company can go into it either to develop an owner-operator base and help contractors, or they can go into it to make a profit center out of it,” he says.

Sheri Aaberg, general manager of ATBS Leasco, which sets up operators in truck leases with carriers and some dealers, says some leases are essentially weekly rentals with ongoing renewals. “I’ve seen leases where the truck is already sitting on 600,000 miles, and if you read all the way through it, it’s a five-year contract,” she says. “If you’re running 120,000 miles a year, you’re going to be at 1.2 million to 1.3 million miles by the time it’s over.”

Know the contract

If you have questions after reading the contract, consider hiring a lawyer or financial adviser to review it. Make sure items such as down payment, weekly or monthly payments, maintenance escrow account, length of contract and what you’ll owe at the end of the agreement are spelled out.

Work up a budget to give you an idea of what truck payments you can afford and how much revenue you’ll need to cover payments and other financial obligations. Given the age of the truck, estimate what it will be worth when you complete the contract.

Many carriers offer no-money-down contracts, but this often means higher periodic payments. Weekly notes of $400 to $600 aren’t uncommon.

  • Travis

    Before you sign a lease-purchase, you may want to check out
    my Kindle book, “Bare-Knuckle Trucking; Strategies for Owner-Operator
    Survival.” I wrote this book to detail many of the ways motor carriers and
    their captive finance companies transfer the capital cost and tax burdens to
    lease-purchase operators while retaining ownership of the truck to indirectly
    control the lease-purchase operator. I actually got the title to my truck, but
    it was through a unique set of circumstances that will not be easily replicated
    at a large fleet. I did learn a lot about the mechanics of the lease-purchase
    process, along with the way motor carriers use lease-purchases to the carrier’s
    advantage.

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