Truck Buying Options: New, Used, Buy or Lease
Many choices await you if you’re looking to acquire hauling equipment.
January 2014, TruckingInfo.com - Feature
A glider is a new truck without a powertrain. Rebuilt or remanufactured components usually take the place of the new engine, transmission and rear axles. A ready-to-work glider typically sells for more than a used truck, but for substantially less than a comparable new truck, and can give similar performance.
New trucks usually are more reliable and cost less to maintain than used, though there have been glaring exceptions with emissions equipment.
Kenworth and Peterbilt offer a few models as gliders, but Freightliner supplies the most. It will make glider versions of almost any medium- or heavy-duty new truck in its lineup, and actively markets them.
“Gliders are a viable option to buying a used truck,” says Riley Asher, vice president for fleet services at Clarke Power Services in Springfield, Mo. “They’re good for driver retention because from a driver’s point of view it’s a new truck. Fleets like them, too, from a safety viewpoint – it’s got new brakes, tires, and electrical systems.”
Buy or lease?
Cash is king when acquiring any vehicle, but most customers have to finance it somehow. That leads to the question, buy or lease? Large motor carriers have the expertise to manage all aspects of vehicle ownership, from getting volume deals and maintenance and warranty administration to fuel purchasing and reselling. So they usually buy. But some mix in some equipment leases as well, says Joe Gallick, vice president of dedicated services at NationaLease.
For smaller carriers and owner-operators, buying is the usual route. It makes sense if interest rates are low (as they now are), if dealers or truck builders offer good trade-in allowances, and if there’s enough equity in the trucks to be traded to take care of the down payment. New-truck dealers are affiliated with “captive” financing and leasing companies as well as working with banks for loans, and most independent dealers also have access to financing sources.
For consumer-goods manufacturers and merchants for whom trucks are tools to get their products to market – private fleets – leasing can make sense. Saving the “downstroke” on a new truck frees capital that can be better spent on production machinery, store remodeling or a thousand other uses that are closer to a company’s core business.
The same is true with for-hire carriers that could use such capital to build a new shop, or to expand the fleet further than would otherwise be possible through buying.
“One of the things a leasing company offers is financing so a company’s capital lines are kept open,” Gallick says. “It’s reasonable credit at no down payment – 100% financing – instead of going to a bank or lender to buy trucks, where you’d have to put money down.”
That’s possible because the leasing company has more outlets for that vehicle if the original operator defaults, he explains. The leaser also has a good grasp of the vehicle’s residual value.
The cost of ownership of a new over-the-road tractor is well over $100,000, which has the potential to sway some customers towards leasing or buying used.
“There are a lot of gray areas in between, and a lot of structures where, for instance, the truck dealer might be aggressive in residual values,” Galick says. “The resale market is fluid. It’s predictable to a degree, but all the things you can’t predict, like the economy and government mandates, that might have an impact on demand and value, are factors.”
Like big fleets, leasing companies also can cope if the used-truck market is weak when the planned ownership or leasing cycle is up. They can simply keep the truck longer, but might have more uses for it.
“Sometimes lessors can extend a term or lease it to someone else for a year or so until the market for used vehicles improves, assuming useful life remains and there are miles where the maintenance curve won’t increase much,” Galick says.
Leasing is also possible for experienced owner-operators, he explains. Lease payments are comparatively low because they cover depreciation but not equity in a truck, so an owner-operator can afford a better vehicle than he or she might otherwise be able to afford. Good credit is necessary, but sometimes an individual trucker can get backing on a lease or even a loan.
Shippers have been known to do this in return for a reliable source of transportation.
Credit now is more available than it was in the depths of the Great Recession, and companies such as NationaLease (an association of 165 truck leasing and rental and logistics companies, and some dealers) have plenty of competition in companies such as Ryder, Penske, Paclease, IdeaLease, not to mention regional and local sources of loans and leases.
So whether you lease or buy, you have many options.