Owner Operator Best Practices Series: Lease Purchase Programs
August 25, 2017
Author: Ben Droessler
This 3 part series is for trucking companies offering, or considering offering equipment leasing programs for owner operators. As trucks become more expensive and owner operators have difficulty buying a truck on their own, lease purchase programs are a great way to attract owner operators.
Part 1: The Basics
Part 2: Physical Damage – Costly Mistakes
Part 3: Breaking Up is Hard To Do
Setup: 3-year leases with a residual buyout are most common. Variable terms include down payments, security deposits, buyout clauses (to be covered in Part 3), maintenance, turn-in conditions, mileage overage, insurance, and other chargebacks. Make it clear to the owner operator what they can expect to pay. Hidden costs or unexpected expenses will tarnish your program’s reputation.
Structure: Form a separate company, ideally with different ownership structure to hold the equipment. Many states do not recognize owner operators as independent contractors when the trucking company leases equipment to the owner operator. Even when using excess or older trucking company equipment, the trucking company should “sell” that equipment to the leasing company prior to leasing to the owner operator.
Success: Lessor, lessee and trucking company must strike a balance so that each profits from the program. Higher margins for the leasing company will drive lower margins for the owner operator and higher turnover for the trucking company. Too lean of margins for the leasing company may make purchasing and financing equipment difficult, stifling capacity for growing the program. According to American Truck Business Services, the largest business service provider for owner operators, the average weekly truck payment is $530 per week. Build an owner operator P&L as part of your program. Can an owner operator make money at a reasonable workload?
Take action! A portion of Cottingham & Butler’s Owner Operator Scorecard evaluates lease purchase programs. It’s free, confidential and results are instantly emailed to you. Complete Independent Contractor Risk Scorecard.
Contact Ben Droessler with Cottingham & Butler’s Contractor Services Team.
Ben Droessler CIC
Vice President, Independent Contractor Risk