Lease-purchase, or rent-to-own, programs have been around for years, but the collapse of used equipment values has greatly increased interest in them. Rather than take devastating write-downs of assets, many carriers are offering used trucks to drivers. And with tens of thousands of late-model tractors sitting on their lots, many leasing companies are taking chances on buyers with shaky credit rather than suffer certain loss.
The key to making a new operator successful is keeping lease payments and maintenance costs affordable. Current deals on three- to four-year-old tractors meet both requirements. A driver today can lease a late-model tractor at $500 to $1,000 a month less than a similar tractor would have cost two years ago. Indeed, lease programs have become so attractive that carriers may need to adopt them just to keep drivers from jumping to competitors.
Lease-purchase programs have a spotty reputation, but a solid program can be a real asset for a trucking company. Providing a career path for drivers helps establish loyalty. Recognize, however, that creating an owner-operator is far different than leasing from an established owner-operator. Take the following steps to avoid major pitfalls.
Hire an experienced lawyer. The line between an employee and an independent contractor often is quite fine. Carriers holding title to the tractor often try to restrict what the new owner-operator can do and how settlement money is dispersed. Placing too many restrictions on the owner-operator, however, may lead the Internal Revenue Service to conclude that he really is an employee. If that happens, you will owe payroll taxes and, perhaps, penalties.
Although you bear this risk in any owner-operator relationship, the structure of a lease-purchase program often becomes a target for owner-operators who fail. They may find a lawyer or complain to a tax agency.
Don’t take chances. An experienced lawyer can steer you clear of problems. Ask a few carriers that already offer a lease-purchase program for a referral to a good lawyer. Don’t be surprised if these carriers offer a wealth of free advice as well. Trucking companies with established lease-purchase programs don’t want to see another carrier lose a court case that may establish a bad legal precedent.
Set up a business advisory service. Becoming an owner-operator gives the driver many rights – including the right to go broke. Newly minted owner-operators often spend all of their first few settlement checks and don’t reserve any funds for maintenance or tires. Most successful lease-purchase programs are accompanied by educational activities to help drivers become owner-operators. Many carriers, for example, help new owner-operators set up budgets to ensure they cover future expenditures.
There are resources available to educate owner-operators on business practices. For example, Randall Publishing’s Overdrive magazine and Volvo offer Partners in Business, a program that includes a business manual and seminars at truck shows. Also, some financial consultants specialize in owner-operators.
One carrier launched a cooperative to allow its owner-operators to negotiate better deals with key suppliers. Although many trucking companies offer owner-operators deals on equipment or supplies, these opportunities often are viewed as buying from the “company store.”
Think through lending practices. Once you start a lease-purchase program, don’t be surprised to find yourself a lender of both first and last resort. Remember, most drivers in your program won’t have resources to weather bumps in the road. Even if there is an established maintenance account, it will take time for funds to accumulate.
To protect yourself financially, you might decide never to extend credit to new owner-operators. You run the risk of a high failure rate, however. Once the word gets out that you won’t “work” with owner-operators, it will become much tougher to bring new drivers into the program.
A successful lease-purchase program creates success stories on the road. A reputation for fairness and dedication to the success of independent contractors will attract more drivers and make it more likely they will stick with you when they hit that inevitable first bad bump.
David Goodson is a management consultant specializing in the transportation industry. E-mail [email protected].
