In last months article we discussed six of the suggested questions you ask any carrier when entering into a lease purchase agreement with a motor carrier. Something to keep in mind when you’re considering the becoming a lease purchase operator: What is the real benefit to you as an individual trucker.
As a company driver you have strictly the responsibility of being available to drive a truck , and follow the instructions of your fleet manager, dispatcher and safety director of the carrier for which you are employed. If the truck needs repair, while you may or may not depending on the trucking company be paid for downtime while the truck is repaired, you have no responsibility to pay for said repair. As a Lease-Purchase Operator, a repair and maintenance is an expense that you pay for out of the revenue (earnings) the truck generates. But here’s the rub, if a truck is in the shop you are not only paying for the repair, but extended downtime will significantly reduce your earnings meaning there’s less to cover other expenses.
If you take time off to go on vacation as a employee driver the worst that can happen, if the carrier doesn’t include vacation pay as a part of your employment package, is you won’t be earning any wages during that time. As a Lease-Purchase Operator you will have the added financial responsibility of the lease payments, insurance, and other fixed expenses of owning a business. Going lease purchase requires a significant increase in revenue (total earnings before expenses are deducted) to cover not only your pay for time off but the lease payments for the truck and other related fixed expenses. This can be as much as $275 to $300 per day. So knowing what the truck will earn vs what it will cost to own and operate becomes extremely important.
Now let’s continue with the questions you to which you’ll need answers inorder to make the best decision for you and your family.
Does the trucking or lease require a maintenance account reserve?
This account is used by trucking companies in several different ways.
- As a means to guarantee that if a trucker doesn’t complete the Lease-Purchase, the carrier has the money necessary to retrieve the truck, make any needed repairs so it ready to be leased again.
- As a means to have the money available for routine maintenance so the trucker doesn’t have to have the money in his/her pocket at the time of the maintenance is completed. It’s paid directly from the maintenance account and the time the maintenance is completed.
- As a means to replace tires that have worn beyond the legal tread limit. Keep in mind, in many cases, this doesn’t cover a flat tire repair or blown tire. That is a cost usually bore by the Lease-Purchase Operator.
- One thing it is not is a repair account. So if you have a transmission or rear-end go out it’s not an account where funds are available to cover that cost. There are some exceptions to this but very unusual.
Very import to know for what you can and can not use the maintenance account. Don’t assume anything.
How much is taken out how often to build the reserve?
For nearly all trucking companies this is a per-mile fee that is taken straight out of the revenue your truck earns, it ranges from a nickel to as much as 15¢ or 20¢ per mile. Keep in mind that the higher the amount the more things the money in this account needs to cover.
What is the total amount required to be held in the reserve account?
Some companies have a threshold amount for what goes into a maintenance account, others do not. It is very important to understand exactly what the maintenance or any other reserve account is for when carrier insists on having funds debited from your revenue. What kind of access do you have to the account, can you withdrawal any of the funds in the account and for what reasons or circumstances?
Length of lease/purchase?
Seems simple enough, right. But there are all kinds of circumstances that can cause that to change. If you have a Lease-Purchase agreement that doesn’t deduct payments if you’re off for time, this doesn’t come at no cost. There are always fees associated with any change in terms, some are spelled out others may be less than obvious. In the previous article it was recommended you a have any Lease Purchase agreement gone over by an attorney, this is one of the many reasons why. It is imperative you fully understand what you are signing, as that signature says you do.
Any warranties on the truck? for how long?
There is a saying that is very true, This machine, this truck, has maintenance and repair needs that if denied only become more costly down the line. This is true of any truck, new or used. Add to this that most truckers who enter into a lease purchase agreement are shall we say not in the best of financial positions, if they were, they wouldn’t need this avenue to become a self-employed trucker. with that understood, that it’s not a stretch to assume a major breakdown requiring a five figure repair such as an in-frame engine rebuild is not in the financial card. If you don’t have 20,000 or 25,000 sitting in a bank account available to rebuked the engine, transmission or rear-ends make sure you have a warranty on the truck of sufficient length of both time and miles.
Think of it this way most used trucks that are in Lease Purchase Programs have been lease-purchased by a previous trucker, who most likely lost the truck do to financial problems, do you really think that truck was properly maintained, especially if that trucker was given the choice of fix or maintain the truck or feed his family?
Buyout at end of lease/purchase?
Again not as simple as it sounds. In the lease-purchase agreement it will have a final payment, or a buyout amount stated within the contract. Don’t assume that’s the final amount. Many times within the agreement there are other fees or charges which per time don’t sound like much, but they are accumulated over the term of the lease-purchase and added on to the final payment or buyout at the end, which can significantly increase the amount needed to get the title. Over-mileage fees that were mentioned in the previous article is a great example. Again your due diligence is required to look through the agreement thoroughly for these potential time bombs.
It’s not how many miles you drive; it’s how smart you drive each mile that counts.