This fireside chat is part of FreightWaves’ Small Fleet & Owner-Operator Summit
TOPIC: How to choose between owning and leasing equipment
DETAILS: For small fleets and owner-operators, the decision on whether to buy or lease equipment is crucial to financials. What factors should they weigh in this decision?
SPEAKERS: Kevin McCarthy, vice president of sales, West region, Ryder, and Andrew Cox, market research analyst, FreightWaves
BIO: McCarthy oversees eight West region business units covering 20 states. He has been at Ryder in various executive positions for the past 15 years.
KEY QUOTES FROM MCCARTHY:
On aspects of the total cost of ownership that are missed: “One is over-the-road breakdown costs. Not just towing. When a vehicle goes down for repairs, the business needs to go out and rent a truck and oftentimes the time and costs of picking up a rental truck to keep the business moving is missed. Another big one is administrative costs. Managing the process, keeping track of multiple invoices from multiple vendors, picking up the phone when a truck breaks down. Another thing that can be overlooked is the cost to dispose of a vehicle at the end of the holding period: damage repairs, touch-up repairs, advertising and marketing costs. Last but not least, the value of the vehicle at the end of the holding period is unpredictable. It’s a very cyclical market.”
On the benefits of leasing versus buying: “Starting with procuring the vehicle, when you lease a vehicle from Ryder you’re taking advantage of the purchasing power we have in place with our manufacturing partners. When it comes to operating and maintaining that fleet, you’re getting the network of Ryder locations. We have 700-plus shops across North America and over 4,700 trained full-time technicians that can provide 24/7 roadside service. Another benefit is that if the vehicle requires lengthy repairs, our large fleet of commercial rental vehicles can provide a substitute so there’s no disruption. And of course, at the end of the holding period under the fair-market-value operating lease, we take the vehicle back and we take on the residual risks of disposing that vehicle.”
On the benefits of buying versus leasing: “Tax implications obviously come into play. When you buy a truck, you’re able to take advantage of accelerated depreciation [under] section 179. When you go out and buy a vehicle, all that is tax-deductible in the first year. When you lease a vehicle under the fair-market-value operating lease, you can’t do that because the taxable purchase amount is actually on Ryder’s balance sheet and the residual value falls on Ryder. However, Ryder has a unique option called a tax-advantaged lease, which is essentially a conditional sale wrapped with our comprehensive maintenance program, and at the end of the lease term, there’s a predetermined residual value that the customer pays and they own the vehicle outright. So from a tax-treatment perspective, the customer is actually able to treat that vehicle like it’s on their balance sheet and they’re able to take advantage, under a full-service lease program, of the accelerated depreciation in that first year, when you can’t do that with an fair-market-value operating lease.”