Your thoughts on a lease program

Discussion in 'Lease Purchase Trucking Forum' started by BigBadBill, Mar 1, 2013.

  1. BigBadBill

    BigBadBill Bullishly Optimistic

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    Ok, last year we explored creating a kinder, gentler lease program that we scrapped because in our feeling the only way to make it legal was to allow people to take the truck to other carriers. And that was a risk that we could not take. And it is also an important factor in why people should not be leasing from a carrier.

    Please don't turn this into a bash lease programs - we have enough of those.

    I was approached by a company that leases late model tractors, has a good list of approved companies (that we are one of) that a driver can lease to. So you are not stuck with a single company.

    On our side we would NEVER lease someone that we do not feel completely understand what they are walking into. Or that doesn't have the resources to be in business for themselves.

    Still waiting on details but know they lease 2011-2012 Cascadias on a straight lease (purchase option but they tell you straight up you would be silly to think of this as anything other than a lease). Liberal escrow policy in terms of how the money can be used for repairs. Sounds like easy qualification process and I believe that we would be much harder on qualifying drivers.

    What are some of you thoughts on what would need to be done to make sure that is someone did this (talking about driver) that they would be successful?
     
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  3. ironpony

    ironpony Road Train Member

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    You need to vette the folks to make sure they have the experience and savvy to make something like this work. IMO, the biggest problem with lease programs are letting inexperienced folks into them, and a lack of capital reserves to make it work. They have to run it as a business, or it just won't work.
     
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  4. jdrentzjr

    jdrentzjr Road Train Member

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    Life has no guarantees. And especially not in trucking.

    What is vetted as a good O/O can quickly turn into a bad O/O due to a huge variety of reasons. No matter how much vetting you do there will always be the unknown.

    Just remember, someone vetted you & still took a chance.

    So the only thing you can do is to set standards & stick to them. What happens after that is out of your hands. Understand that eventually something will go wrong. The question then becomes "how are you going to deal with it?".
     
  5. tomkatrose

    tomkatrose Light Load Member

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    Seems like leasing a late model tractor would be fairly expensive to lease if there were any ownership opportunity at the end of it, in any lease structure. If you are taking on someone new and they haven't been burdened with a big monthly nut to cover before, they might be getting in over their head without knowing it. Just because someone qualifies doesn't mean they have the sense for it.

    Using a 3rd party leasing arrangement certainly makes it an arm's length transaction for you legally. I'd think you'd want to limit your exposure on your incurred direct expenses since the driver does have the ability to flip companies. If your expenses, e.g. plates or insurance, are amortized out over 12 months for the driver, if they leave at 6 months, how do you recoup the expense for the last pre-paid 6 months? Granted, your model is different and your drivers should be better vetted, I'd think it would still be important to manage your risk in that regard.

    To respond to your question then, with the above in consideration, I'd think a part of the qualification process would be up front payment for plates, insurance and 2290. If they can't cover that and the down payment on the truck, they may be living a bit hand-to-mouth and not have the savings discipline needed to be a successful o/o. If not paid in full, at least a 50% deposit. If you're going to make it zero cost up front for them, you're not doing anything so different that the big guys and I think that changes your model some.
     
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  6. BigBadBill

    BigBadBill Bullishly Optimistic

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    I have made several posts here that the reason for some my lease failures is not the lease in general but you have so many people that are doing them with zero driving experience, zero business experience and would basically fail even if they had no fixed expenses.

    You are so correct. My biggest fear when looking at O/O's is that I don't want them to lease with us and fail. This just raises the bar on our end in how we qualify. I am sure that there will be many that the leasing company qualifies, that we feel aren't ready and will go lease on with someone else.
     
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  7. RedForeman

    RedForeman Momentum Conservationist

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    I agree with what IP says about prospects for an equipment lease program. But what about your exposure? Is F2F on the hook for any part of this leasing partnership? I would think that would be a big driver of your entry criteria.

    At a minimum, I know you would be tailoring an instructional program for prospects of this to insure they "get it" with regards to what they are signing up for, along with the risks.
     
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  8. BigBadBill

    BigBadBill Bullishly Optimistic

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    It is not a cheap fixed payment but in line with the value of the equipment. Part of our process would include a marketing plan/budget that the person would have to explain to me how they come up with the numbers. If they are married I will want to talk with the spouse to make sure that they understand that there will be times of sacrifice in order to be successful.

    Only expenses that we would have that would carry forward would be plates but those can transfer to another truck. We are on reporting for insurance so we only pay for actual time insured so zero risk there.

    I am waiting on qualifications from the leasing company. But I understand they are very low. If they are not looking for deposits, or limited deposits, then we would likely look to have them ask for an increased escrow deposit for repairs and we would want other items paid before leasing them.

    In terms of risk on our side with leasing company, the contract with us states we are not to go into debt for any reason in regards to the truck. So if they have to go after the driver we are not on the hook for a single penny. Only money we owe them is what we settlement deduct for the lease payment and repair escrow.

    Also, participating in a business management program that includes a monthly P&L, quarterly taxes, ability to run a profit analysis on each load and live consulting. Additional training and support is also available and we will require a certain level that we will partially pay for.
     
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  9. BigBadBill

    BigBadBill Bullishly Optimistic

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    We have a driver with us now that is leasing through them and moved from one company to us. Honestly when we started the process with the driver I had no idea what his lease was and that did cause a little issue. We where not approved. But they gave us conditional approval and even when he gets behind because of time off or repairs or ... We are proactive in making sure that he gets back on track. Apparently, no other company that they have drivers leased takes any action with drivers to make sure they are succeeding.

    We have ZERO exposure. And on the upside, we look at this as a way to help people become O/O's. After a bit of time we could explore helping them finance or do a loan mtn or ??
     
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  10. droflex

    droflex Light Load Member

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    Absolutely agree. If a person can't come up with say, 50% down, they aren't serious and money management skills are lacking.

    But where did the 50% down payment come from? The housing market collapsed because of non-verification of available funds (or 0 down).

    Need an airtight paper trail on those funds to make sure it wasn't borrowed, inherited, stolen, etc. They actually saved it.

    The people that have a business mindset wouldn't bat-an-eye to live off top rommen, mac & cheese even when they have $100k in the bank.
     
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  11. aiwiron

    aiwiron Road Train Member

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    Old fashion tag for further reading
     
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