The WORST Lease Purchase Agreement I've Ever Seen

Swift rates number one on the list of worst lease/purchase arrangements that exist out there, which will not surprise most. You can view their program offering and slanted figures here:

http://www.swifttruckingjobs.com/lease.html

What I'm going to do is offer you the TRUTH on what a driver can expect to make. Rather than go through all of their options, I'll be selecting the least expensive option to dissect, which will be the Freightliner Columbia. I will also do this based on a solo driver operation, and the fact that you have already been employed with Swift for a year, which is a requirement for entering into this particular truck.

First and foremost, they want you to front them a down payment of $5,000 or they want a "security deposit" of $1,000 established for increased weekly payments for two years of the three year term. We'll set that aside for a moment. They state that the "lease price" of the truck is $89,750. Keep that figure also in your head for later.

Let's say that you can come up with 5 grand to pay down. You sign the papers and you're on your way to independence....right?

According to their pay structure, and assuming you work in their van division, you can expect to make .815 per mile when loaded, and .79 a mile empty. This is an insult, but let's go with it so that people will see just how bad a deal this is. I will even include that they are paying a fuel surcharge for every mile of what should be at the very least 13 cents per mile currently, but I doubt that they are. This will raise the per-mile revenue to .945 loaded, and .92 empty.

Other calculations in this will include the following:

Paid miles will be calculated to be 90% of actual driven miles, which is a real life expectation.
Empty miles will be calculated to be apprx. 10% of all paid miles per week.
Accessorial pay (detention, unloading, stop pay, etc.) will be calculated to average $150.00 per week, generous in my estimation.
Average weekly PAID mileage will be 3,000 miles per week (generous)

So let's figure what your average weekly revenue will look like:

$2,551.50 (loaded paid miles)
$276.00 (empty paid miles)
$150.00 (accessorial pay)

$2,977.50 per week gross revenue

Looks great...right?

Now...let's calculate your weekly expenses. There are two categories. You will have fixed expenses, and variable expenses. Fixed expenses consist of the lease payments, insurance, equipment rental charges, etc.. Variable expenses consist of fuel, fuel taxes, income taxes, supplies, etc.. Swift also has a charge for "excess mileage" when a driver puts more than 11,000 ACTUAL miles per month on the truck. To avoid this charge, a driver would be limited to only averaging 2,538 miles per week, but let's assume that you're an energetic driver, and will do the 3,000 miles per week, and pay the small .09 per mile in excess mileage fees. This is also assuming that Swift will be able to keep you busy enough for you to drive this many miles on a consistent basis, which is doubtful.

Weekly Fixed Expenses (known):

$452.00 (weekly lease payment)
$51.75 (weekly comprehensive premium averaged)
$8.08 (weekly non-trucking liability insurance premium)
$47.76 (weekly occupational/accident insurance premium)
$4.80 (SSR averaged over the entire year)
$28.84 (bond averaged over entire year)
$18.36 (qual-com rental)
$68.58 (excess mileage charges averaged over 52 weeks)

$680.17 (total fixed expenses)

The next section will include fuel, the number one expense that you will have to foot. I'm going to be generous and assume that the truck you will be put in, gets an average of 6.5 mpg. Remember, you're getting paid for 3,000 miles per week, but actually will drive an average of 3,300 miles per week. At 6.5 mpg, you will burn an average of 508 gallons of fuel per week.

Incidental maintenance items are not paid for by Swift, which includes lights, belts, filters, etc. Tolls are reimbursed.

Weekly Variable Expenses:

$1,096.77 (weekly fuel cost average @$2.159)
$35.00 (incidental maintenance items on a new truck)
$20.00 (incidental personal expenses)
$150.00 (meals)
$10.00 (Money transfer fees and/or fuel card use charges)

$1,311.77 (total average variable expenses)

So..let's recap what we have:

$2,977.50 (gross revenue)
-$680.17 (known fixed expenses per week)
-$1,311.77 (known variable expenses per week)

$985.56 (tenative net profit per week)

Still think that's great?

Do you have a wife and children? You surely don't want to be without health insurance, do you? Swift offers owner/ops to buy health and dental insurance through them, a fine thing, so let's be generous and assume that they have a decent program to insure your family, at a charge of $250.00 a week.

Now you've got $735.56 left....still okay?

You're forgetting income taxes....and so far, every one of your expenses are tax deductible, so after you do your schedule C, you'll be paying taxes on about $38,000 in income.

Self employment taxes alone comes to $5,814 on that amount, and I'll assume that you will have to pay a meager $2,700 or about 15% in income taxes after adjustments.

So...that's gonna run you another $163.00 a week on average.

Now you've got a grand total net spendable income of $572.56 a week.

Some may look at that figure and think to themselves...."okay...it's not great, but I can live with that".

Keep in mind that this is the BEST you could ever expect and these figures represent optimal conditions week in and week out for 52 weeks straight. That ain't gonna happen.

What if you only get 2,000 miles one week? You'll save about $367.00 in fuel costs, but you'll also lose $748.00 in revenue as well. Your net for just one week could tank to a couple of hundred dollars. Want a vacation? Your fixed costs go on for that week you take off, but you have no revenue. Heaven forbid you get sick and lose a few days a couple or three times per year. What if the truck you drive only gets 5.5 mpg? You are going to spend another $200 a week in fuel. See where this is going?

Now...let's revisit the initial figures of the cost of the truck up there. They claim that the "lease price" of the truck is $89,750. In 36 months, you will have paid $70,512 in lease payments. In order to BUY that truck at this point, you will have to write them a check for $34,105 to get the title. You will have paid them $104,617 for a truck that at that point is worth less than half that amount. Oops...you paid $5,000 dollars down. Make that $109,617. I'm a little out of touch on new truck prices, but my bet is they will pocket at least $30,000 at your expense, IF you complete the purchase.

What if you quit because you are not making a decent living? Swift loses people in droves over this VERY issue. Your chance of making it through that program for three years is about on par with you winning $100,000 in the lottery within the same time period. You'll have lost your $5,000 down payment, and you probably will not see your bond amount refunded either. You're out six grand, you've got to find another job, and you will owe income taxes to boot.

Now...if that isn't enough for you to decide this is a lose/lose proposition, think about what you could make elsewhere as a company driver, making .35 a mile....with full benefits, paid vacations, and half of your social security taxes paid by your employer.

Your spendable income will be at the very least, a third MORE than you will EVER see entering into the scenario above. In reality, it will likely be twice the amount.

To anyone even considering entering into a lease/purchase agreement I have three words for you....

Just....Say.....NO!!!!

 

Operating costs are not quite THAT high, but if fuel keeps going up, they may be soon. For the record...company driving jobs are in...and Owner/Operators are out....for 2005 anyway.

I can't stress enough, that when you lease a truck from a carrier, the cards, the strings, the whatever...are all in their hands. They control it all.

I have never run across a lease/purchase agreement that was worth a second look, if you take all the time to investigate and digest what it represents.

There are carriers that never intend for a driver to own the vehicle, and will prevent it from happening. Even the carriers that simply lease the truck with NO purchase option, will win at every angle. They save taxes. They don't pay for fuel. They don't have to provide insurance on employees. They shift all these burdens to the driver, and the driver works for less....EVERY time.

Personally, I never knew, until I made the switch to a company job the first of this year, just how bad I had it. I always made good money, but I didn't realize how much more I am actually SAVING....

My main reason for making the change, was for medical insurance. Both my wife and I have cronic medical issues, and my private insurance costs were absolutely through the roof. I was forking out close to $2000 a month to insure us, and hundreds more for medicine that was not covered.

Okay...I gave up the liberty of going home when I want to. I don't get to choose my loads. It's a small sacrifice to not having to spend hours per week doing books. I like paying $20 when I see the doctor. I like paying $18 to pick up a prescription. I like not having to write 20 checks per month for my business expenses.

I like my company job....

 

I hope you get to see this. I apologize for the tardiness in my reply. My plate has been full this week.

If I were in your shoes, I'd give Fed-Ex Ground a consideration. It's just about the best thing going on at the moment, in my estimation. I don't know all the finite details, but in talking to their contractors, they are content and they make money.

100% drop and hook, terminal to terminal is enough to catch my eye. I'd like to know more about the "discounted fuel" at their hub terminals. If it is truly discounted to offset higher prices on the road, it might well be worth it.