Turning over a new lease
Old trucks frequently require repairs, but new ones are expensive. Should you put more money into old vehicles or replace them?
Most sheet metal and HVAC companies use cargo vans or trucks equipped with specially designed work bins and shelving that allows them to arrange tools, equipment and parts for maximum efficiency. Others use pickups with an array of toolboxes and ladder racks mounted to the truck's bed. They range from $17,000 for the basic half-ton work truck to $30,000 or more for fully equipped service and installation vehicles.
At such prices, it's not surprising that many contractors drive their trucks until the wheels fall off. Some go as far as to replace the engine. Maintenance is the key word here. It is crucial to make sure oil changes and other preventative work is performed on a regular basis. A good maintenance program is the best insurance you can buy to control your vehicle-operating costs.
Some contractors take a more aggressive approach and replace their trucks on a schedule such as every three years or 60,000 miles - whichever comes first. They feel new vehicles project a better image and save them the cost and hassle of repairs.
Consider your optionsWhether your business uses one truck or 100 trucks, paying for vehicles is often a challenge. Most contractors have three options: cash, conventional financing or leasing. Each one has strengths and weaknesses.
If you are considering buying a vehicle outright, ask yourself if the company can afford to pay for trucks out of working capital. Is the money better used somewhere else? You may find that you are better off investing those dollars elsewhere in you business and using an alternate financing source for your truck. Also, dealership salespeople sometimes don't understand contractors' needs and you many not get all the rebates or incentives you're entitled to.
Conventional financing includes loans from banks and other financial institutions. You pay for the purchase over time. At the end of the loan's term, you own the vehicle. Conventional financing is often more attractive than paying cash, since you avoid using working capital. One drawback to using conventional financing is that most bank officials can't help contractors determine what vehicle they should purchase.
The third option is leasing. Many manufacturers, dealerships and even some banks offer lease programs specially designed for trucks. Independent leasing companies can help you analyze your vehicle needs and determine what's the most cost-effective plan for your situation.
All makes availableMany independent vehicle-leasing companies deal with all makes and models and are registered fleet buyers. This allows you to take advantage of one-stop shopping. Many independent leasing companies have the ability to buy in volume and pass the savings on to contractors.
Other possible advantages include:
- No money down. Most leases don't require a down payment.
- Conserves working capital. Cash isn't tied up in your truck purchase. This means that you have more money available to invest in other profit-generating activities. Leasing allows the vehicle to be paid for as it produces revenue.
- Maintains credit lines. Leasing provides an additional source of credit. It leaves other credit lines available.
- Fixed payments. With most leases, payments remain the same regardless of interest-rate changes.
- Used-truck leases are available. Many companies offer late model, low-mileage used trucks.
- Mileage limits and penalties are a thing of the past. Some leasing companies now offer unlimited-mileage leases.
Those are some of the reasons Phil and Bruce Frasier of Frasier's Plumbing and Heating in Rhinelander, Wis., decided to lease when they were ready to start replacing their fleet. After listing all the operating costs for their current vehicles and meeting with a representative from a leasing company, they discovered the trucks they thought would be the most expensive to operate turned out to be cheapest.
Greg Teirnan, CEO of Indianapolis-based mechanical contractor The Freije Co., is also a fan of truck leasing. Teirnan said using an independent leasing company made the process much easier. The leasing company delivered his vehicles ready to use, painted with his logo and bins and ladders installed.
"My technicians just need to move into their new trucks and go right to work," he said. "It saves me loads of time, hassle and aggravation, so I can focus on what I do best - operating my business."
(Brent LeVee is president of Chicago-based JEB Leasing Co., which specializes in fleet services for contractors.)