Input on this Potential O/O Deal

Hi Brickman,

I just joined this forum and I did so after viewing this thread. I realize you are already running for this company but I wanted to offer you my unsolicited $0.02. I hope this is OK.

When I read your first post from August, I was thinking Oh No! another one bites the dust.

I was in auto transport for 12 yrs as a truck owner. I was fairly successful at it and got out when the workload/revenue ratio became less than 1:1. I've leased equipment to 3 different companies and I've worn out 2 trucks in that time. At $200,000 each. I have also witnessed the industry steadily decline in both gross revenue and net profit.

Please take note that in the above I didn't say Owner/Operator. When you sign an equipment lease with a company, and if your equipment is listed on their authority, THEY are the operators. The owner merely furnishes the operator with the equipment. Unless YOU have an "employment" contract or agreement with them stating otherwise, the person who drives this equipment is up to the company. Usually, they can fire you without voiding the lease. Again, you are ONLY providing the company the equipment listed in the lease. This is important!!.

In your case, THEY are leasing you the equipment you are furnishing to them. There are so MANY caveats to this arrangement.

First, and most important, is what happens if you become ill or get injured and cannot perform the job (I don't need to tell how dangerous hauling cars is, especially in winter). Are they going to run your truck with a replacement driver? Are you sure? Is that in writing?

Second, can you legally enter into an equipment lease when the equipment you're leasing to a company has your name NOWHERE on any documents (title, registration, federal paperwork, insurance etc). I honestly don't know but I don't see how this is proper.

Third, the only auto transport company I know of that handles the lessor's settlements properly is Allied Auto Group. They give the owner a TRUCK settlement and then the DRIVER is issued a separate settlement. Even if the owner and the driver are the same person which is usually the case at AAG. This is the legal way of doing this. This is not to say that there aren't others operating in this way. I just don't know of any.

Fourth, As you get close to "paying off" this lease what, if any, assurances do you have that the company will continue to provide you profitable loads. Is it remotely possible they will starve your truck until you can no longer make the payments? This can be solved by having enough money saved to pay off the last 5-6 payments.

Fifth, as asked earlier in this thread, did they purchase YOUR equipment outright and then lease it to you or is there another lien holder listed on the title? If so, then what happens if they fall on hard times as all companies eventually do? This is actually what happened to a number of drivers who entered into the same type of agreement as you have with a company called Saher Distribution Service (SDS) from Tacoma, Washington. The driver/owners made their payments to SDS but SDS wasn't making their payments to the bank. I know at least five people whose trucks were repossessed through no fault of their own and those that couldn't secure private financing lost ALL of the equity they had in the equipment.
Ask the company if you can have copies of the payment receipts to the lien holder included in your settlement or periodically inspect their receipts. They are almost assuredly making a profit on your payments to them. Let them know you are OK with that. They are entitled to that profit by taking the risk on you by purchasing the equipment on your behalf. How much profit they make is actually irrelevant to you and not your concern no matter how much it is.

I am not an accountant so check with a tax professional to verify this, but regarding tax ramifications on your arrangement, two things I learned:

ONE: When you pay off this truck you will owe the IRS capital gains taxes on the value of the truck at that time. Presently 15%. It's possible to avoid this but you're going to need an accountant on board before your last payment is made.

TWO: While you may deduct 100% of your lease payments, Normally, you may not take the depreciation. That is reserved for the person who is leasing this truck to you. In this case, your company This is a mistake many bookkeepers and some accountants make because they don't ask to see your loan/lease documents.

Please know that my comments and concerns about your arrangement would apply to ANYONE contemplating a similar arrangement. Not just auto transport. Having said that, there is quite a bit of information I could give you concerning car hauling in particular. Not because I'm smarter than anyone else but because if there are ways NOT to do things, be assured I have found most of them.

A couple of quick "for instances": Thinking I was going to make money in December and January. Sound familiar? Or, not worrying about that small bit of hydraulic fluid leaking on the ground. CRUNCH!

Take a cruise, a trip to Europe or schedule your double hernia and shoulder replacement surgeries every August until you sell your truck. Running your truck in August will just wear out your equipment, and give you heatstroke. Oh, and you won't make a dime hauling just 2-3 cars at a time. Dealers don't buy cars in August.

Make having a $10,000 "OH SH@#" fund a priority. You are gonna need it.

I wish you good luck and if you have any questions that I might be able to help you with, please ask. It'll be my pleasure.

Michael

 

I'm afraid that the tone of my post was one of a "know it all". I honestly didn't mean it to appear like that.

The company name wouldn't appear on the TITLE if you had outside financing. It does need to be on the REGISTRATION in order to be listed on their authority. If this is what you meant then you are correct.

The split settlement is not a requirement of the "Truth In Leasing" laws. Rather than create an employee arrangement, it does the opposite in defining the lease as an equipment only lease. The employee wages are deducted from the TRUCK settlement. The owner/driver receives a w-2 and a 1099 at the end of the year.(if they are the same person).

 

100% correct. I am self-employed (same as an O/O) and I get nothing from my "employer" at the end of the year. It's up to me to do what I have to do.

 

A W-2 is for employees. A O/O, Leased Owner all receive 1099's.

 

Absolutely correct.

I'm willing to bet that if you read your equipment leases, there won't be any language in it regarding who will drive the truck. Mine never did and only one had language that stated that I hold the company harmless in the event I don't pay a driver that I have hired. In other words, the lease is for the equipment ONLY.

It seems that you are assuming that ALL truck owners drive their trucks. That's not always the case. What if the owner hires someone to drive his truck for him while he basks in the sun down in Florida.

The company pays that driver a "W-2" wage based on the company's pay scale (in their case, the teamsters national contract pay scale) The DRIVER has an employee relationship with the company. They then deduct the employee's wages and the employer contributions from the OWNER's settlement. This insures that a) The driver is compensated for the work he performs and b) That all benefits including workers compensation premiums are paid. The company doesn't have to worry about the driver coming after them for unpaid wages.

So, to recap....

The driver gets a W-2 because he is an employee.
The owner gets a 1099 (unless he is a corporation).

This defines the status of the truck owner as an independent contractor who has provided the equipment. And, the driver as an employee. You can accomplish the same thing by incorporating and paying yourself a W-2 wage.

Whether or not the owner and driver are the same person is really kind of irrelevant because in the eyes of the IRS the employee/contractor relationship regarding your truck is firmly established. If they are the same person then he/she would file a 1040 for the wages and a business return for the truck settlements. And you still have all the deductions and benefits of a business operation including the wages.

Like I stated in my original post, Allied is the only company I know of that clearly defines the contractor relationship in this way. I know it is NOT the norm.


Take care and Be Safe

Michael

 

maybe we need to institute a glosary?

owner operator: owns or is purchasing and operates his truck. He may lease the truck (driver included) to a company vs. having his own authority.

lease operator: leases a truck from a transportation company (most often with an exclusive contract) and is operating his truck.

leasor: leases vehicles to companies but does not operate the vehicle. The leasee employs drivers independently of the leasor.

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