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Leasing

What to Know Before Opting for a Full-Service Lease

May 2017, Work Truck - Cover Story

by Lauren Fletcher - Also by this author

One of the major benefits of a full-service lease is access to priority maintenance service and nationwide facilities. (Photo: Ryder)
One of the major benefits of a full-service lease is access to priority maintenance service and nationwide facilities. (Photo: Ryder)

Fleet trucks can either be leased or purchased. While purchasing options are typically straightforward, the number of leasing options can make a fleet manager’s head spin.

One such leasing option for fleet trucks is a full-service lease, which is, in a nutshell, a truck lease with several available added benefits.

“A full-service lease is typically a closed-end operating lease that includes maintenance and other transportation services. The operator is the lessee. During the term of the agreement (typically 36 to 84 months), the lessor is responsible for maintenance not due to driver negligence or accident. The lessee makes consistent monthly payments during the term. At the end of the term, the truck is returned to the lessor. Lessees typically begin a new full-service lease with a new truck at that point,” explained Lance Bertram, senior vice president, sales, marketing & distribution for Idealease, Inc.

The majority of full-service leasing customers are private fleets, or fleets that deliver their own products, according to Michael Parrish, CTP – national accounts leasing manager for Volvo Truck Leasing System.
“With full-service leasing, the leasing company owns and maintains trucks. This allows fleets to concentrate on metrics such as customer satisfaction (on-time delivery) and driver performance, rather than spending time and resources on owning and maintaining the trucks,” Parrish added.

How Does a Full-Service Lease Differ?

As noted above, a full-service lease differs from traditional lease options due to the added benefits and features.

“A full-service lease takes care of everything from vehicle specification, configuration, financing, disposal, and vehicle maintenance. With a full-service lease, you get a fleet you can rely on, predictable monthly costs, vehicle replacement opportunity, and time to focus on your business. The main difference between the leasing products comes down to the level of maintenance the customer receives (included in the price),” said John Barlow, vice president, global products for Ryder ChoiceLease.

One of the main added benefits includes truck maintenance.

“In full-service leasing, the leasing company owns and maintains the truck. With a fair market value lease, the truck is owned by a financial institution and the customer is responsible for the maintenance. We also offer contract maintenance, where the truck is owned by the customer and the maintenance is provided by the leasing company. Contract maintenance is a good fit for customers who want to take the truck depreciation, but don’t want to maintain trucks or don’t have the capability to maintain trucks,” said Parrish of Volvo Truck Leasing System.

A full-service lease is configured to a fleet operation, versus a fleet operation needing to choose from a more “cookie cutter” approach. Fleet managers should research all available lessors as each one specializes in and offers differing features.

“A full-service lease from Penske is a comprehensive, all-inclusive turn-key approach to operating a fleet. That includes financing, engineering, all maintenance, substitute vehicles, environmental compliance, fuel services, and more. We offer a three- to 10-year lease that fits a company’s business goals, based on what we learn from an in-depth analysis,” said Jim Lager, senior vice president of sales for Penske Truck Leasing.

Additionally, various financing options are available with a full-service lease.

“With each of Ryder’s lease options, the customer can work with us to determine the term, financing arrangements, and service delivery method. The fleet manager decides the terms. He or she chooses the lease with the preferred maintenance level, delivery method, and truck type. In addition, many financing options are available. The only commitments made in this lease are the ones the fleet wants because they are right for your business,” said John Barlow, vice president, global products for Ryder ChoiceLease.

When to Opt for a Full-Service Lease

A full-service lease is not going to be the best option for all truck fleets. Various factors should be considered before opting for a full-service lease.

“The primary factors a company wants to consider, from a transportation perspective, are the type of vehicle, their specific application, miles traveled, financing, opportunity cost, and fully loaded maintenance costs (as well as the costs typically overlooked by a company including disposal, administrative, etc.). The key is to conduct a total cost of ownership and let the numbers dictate the decision,” Barlow added.

According to Bertram of Idealease, the main difference between a full-service lease and other truck lease options, in a nutshell, is the inclusion of a maintenance agreement.

“Other leasing options are usually asset-only options, such as a terminal rate adjustment clause (TRAC) lease, a fair market value lease, or a finance lease.  In reality, a traditional full-service lease is really a combination of a fair market value lease and a maintenance agreement. These two products are rolled together into one package,” Bertram said.

Consider a full-service lease as more than a financial tool but as a part of your asset management program.

“A full-service lease provides maximum uptime and fulfills all of a customer’s equipment needs. A Penske full-service lease customer is able to avoid all of the risk of acquisition costs, residual values, and vehicle disposal. A value-add is that we train the customer’s drivers on how to operate these lease vehicles which have changed significantly in recent years. A full-service lease is a full lifecycle asset management tool as opposed to a financing arrangement,” said Lager of Penske Truck Leasing.

When a Full-Service Lease Doesn’t Make Sense

While there are many cases where a full-service lease can provide the most benefits for a truck fleet, there are situations where it simply doesn’t make sense.

“Specialized equipment often does not lend itself to the full-service lease model. Ownership may also make sense in very low-mileage applications when priority service is not needed as much,” said Bertram of Idealease.

Lager of Penske Truck Leasing agreed on the importance of utilizing usage as a metric for gauging whether to use a full-service lease.

“It is not the best fit in cases where a vehicle is going to be operated very minimally or seasonally. This is also true when the company is unable to, or is not interested in, taking advantage of technological advances that come from vehicle renewal,” Lager said

As noted above, research is key to making the right decision for your fleet. Understanding how your fleet operates, the vehicles that are utilized, and keeping your company goals in mind is key to success. The first step is determining whether to lease or own a vehicle in the first place.

“Each fleet should do a lease or own analysis, which has two parts. The first part is a lifecycle cost comparison between ownership and full-service leasing and the second part is a business decision that reflects a fleet’s operational and financial preferences. Based on the results of this analysis, most fleets can determine if ownership or leasing is best for them,” said Parrish of Volvo Truck Leasing System.

Once you have determined that a lease is the best option, the next step is determining whether a full-service lease is needed.

“Business owners are faced with that same decision on many occasions. They have to ask themselves whether it’s better to have a full-service lease or own your fleet? Both leasing and owning have their benefits. Deciding which is best for the company could depend on many factors such as, the type of operation for the fleet, truck configuration, managing preferences, routes, capacity, and financing,” said Barlow of Ryder ChoiceLease.

According to Barlow, these are some of the questions that should be asked whenever someone is considering whether to lease or own a fleet:

• How much time and money am I expected to spend to manage my fleet?
• Am I up-to-date on the complexities of engine technology, regulations, and emissions standards?
• Can you drive more value from my fleet while gaining time to focus on my business and customers?

The Top Benefits of a Full-Service Lease

Some of the top benefits of a full-service lease include the reduction in ownership exposure.

“One of the top benefits of a full-service lease is that the customer gets the full benefit of using the vehicle without the exposure of owning it. They can utilize our extensive network of facilities and trained technicians for vehicle maintenance. Our customers can rely on our company to counsel them through a maze of current and emerging regulations. That includes items such as tax reporting, spec optimization, and regulatory compliance,” said Lager of Penske Truck Leasing.

In addition, according to Parrish of Volvo Truck Leasing System, the top benefits of a full-service lease include predictable fleet costs, greater uptime through preventive maintenance, and, as noted above, no residual exposure.

Another benefit of a full-service lease for truck fleets is that there are no up-front costs.

“A full-service lease is reserved for companies with excellent credit, so they are not required to make a down payment. Also, the customer’s credit line is not affected. The lessor is using their credit to finance the vehicle,” said Bertram of Idealease. “In addition, costs are predictable and budgetable over the term. There are no expense peaks and valleys along the life of the truck. Costs are divided equally over monthly payments.”

Additionally, service quality and priority service are also benefits of a full-service lease. “With a full-service lease, the customer does not have to wait in line or ‘take a number’ to get a truck fixed. Full-service lease companies employ their own mechanics and have far fewer customers than a typical truck dealership,” Bertram said.

Cash, Finance or Lease: Which Truck Acquisition Strategy Works Best?

Determining the acquisition strategy that works best for individual company fleets is a daunting process. Industry experts pose and answer questions to help fleet managers make this important decision.

With the current technician shortage, the ability to lean on a lessor for maintenance assistance can also be counted as a major added benefit.

“Ryder’s maintenance solutions deliver advantages to fleets such as minimizing fleet downtime, maintaining consistent levels of maintenance and repair, automated billing, reporting, and control with predictable monthly expenses. The technician shortage and resources required to train technicians on advancing technologies also make outsourcing an attractive option. Additionally, cost pressures and ever-changing, stringent regulations are making it all the more challenging for businesses to focus on their core competencies,” said Barlow of Ryder ChoiceLease. “Customers benefit from competitive labor rates when they enter into one of our lease agreements. The more maintenance they commit to, the better those rates are on labor and parts.”

In addition, assistance with ever-changing regulatory compliance can be the determining factor for mixed truck fleets with larger GVWR vehicles.

“As Ryder maintains the vehicle, we are also able to keep detailed records and handle the laborious administrative tasks of compliance through back-end systems and resources. Compliance regulations are only growing more and more complex, making it that much more difficult for fleet operators to manage on their own. At Ryder, we relieve the customer of that responsibility and help them to improve their CSA scores,” said Barlow of Ryder ChoiceLease.

Top Misconceptions About a Full-Service Lease

While a full-service lease doesn’t work for every truck fleet, there are some common misperceptions that may result in a fleet manager not even considering it as an option, including cost, maintenance management, a lack of flexibility, and length of terms.

First, there is the assumption that a full-service lease is more costly than managing a fleet on your own.

“Some fleet managers believe that a full-service lease is more expensive than doing it yourself. We can help a customer identify all of the costs associated with operating a fleet and the large majority of the time the full-service lease is comparable or better from a cost standpoint and brings a lot more value,” said Lager of Penske Truck Leasing.

Additionally, some fleet managers believe that a full-service lease is more expensive than truck ownership.

“The belief that a full-service lease is more expensive than owning a vehicle is usually due to a misunderstanding of the true cost of maintenance. Due to this, the full-service payment ‘appears’ to be expensive. This usually occurs simply because the fleet manager is not an expert at truck maintenance because it’s not his primary business,” said Bertram of Idealease. “We have developed a vehicle acquisition and maintenance analysis to help customers understand the true cost of truck maintenance over the life of the vehicle.”

In addition, full-service leases are multi-year contracts, as noted above, anywhere from three to 10 years. Some fleet managers may believe this “locked-in” contract is a drawback.

“One misconception is that the lease commitment of a multi-year contract is a drawback. But, this is a positive in that you have a set, predictable price for the duration of the lease and your maintenance is covered no matter what (in the case of a full-service lease),” said Barlow of Ryder ChoiceLease.

Some fleet managers believe that a full-service lease is inflexible, with no ability to fine-tune to the exact needs of their fleet, which, according to Lager of Penske Truck Leasing is exactly the opposite. “We help customers plan and manage full lifecycle costs and support all aspects of their fleet needs in a true partnership arrangement. When a company purchases or finance leases a vehicle, it actually has very few options other than disposal which is at the mercy of the used-truck environment,” Lager said.

Finally, remember that a full-service lease reduces ownership exposure.

“A misconception is that driver misuse or damage is the responsibility of the fleet. Full-service leasing is a partnership between the leasing company and the fleet, so good communication helps prevents misunderstandings and addresses issues before they get too big,” said Parrish of Volvo Truck Leasing System.

The Bottom Line on Full-Service Leasing

The use of full-service leasing products has expanded over the past several years, according to Lager of Penske. “This growth is a result of the drastically increased cost and complexity of operating commercial vehicles in today’s environment. We have extremely high retention rates with our contract customers because they experience the benefits of being able to focus on their business, while we keep their fleet up and running efficiently,” Lager said.

And, in a time when so many budget line items are unpredictable, full-service leasing can provide a more stable, predictable cost structure.

“Full-service leasing provides fleets with predictable costs, uptime is typically greater, and there’s no residual risk. When you eliminate these risk factors, a fleet’s deliverables, like customer service, on-time delivery, and driver performance, usually improve,” said Parrish of Volvo Truck Leasing System.

And, as always, understand your fleet needs and do your research.

“The only thing I would add is that when evaluating your options, it is very important and something that you really need to do your homework on. Knowing your costs and all the variables that go into buying a commercial vehicle versus leasing one is vital. Ryder’s lease products provide flexibility and can save money in almost all cases,” said Barlow of Ryder ChoiceLease. 

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