Page 18 - ATR 2 2012 web 2

‘Well, technically, you don’t quite own
it yet. There’s a note on it. So you don’t
technically own it.’”
According to Bell, an obvious rea-
“it takes a lot of moNey to operate a truck son to lease is the same reason Ray cited
compaNy, aNd the questioN becomes, where do for his business: It enables a trucking
i waNt to tie up my capital?” - richard bell, company to know exactly what its costs
ceo, bell & compaNy are. “If you look at the truck as just an
operating expense each month, and
you’ve got to pay out the $2,600 a month
for the payment, then that’s it,” he said.
“That’s what you do. Whereas if you own
up depreciation.” won’t be left underwater, the TRAC lease that truck and you take the burden, you
The decision on whether to buy or again is becoming more popular. might make money on the trade, or you
lease depends on the company’s finan- Jannetty said the first question he might not make money on the trade.
cial situation, history and tax strategy— asks his clients who are deciding whether Some things are beyond our control. The
whether the company prefers to defer to purchase or lease a vehicle is if they trucking companies sometimes have no
or pay as it goes, for example. Moreover, can use the depreciation. If they can, control over the economic environment
certain companies may be involved in then financing may be a better option. that they operate in. I mean, they didn’t
a covenant relationship with a bank- However, some companies are ask for 2008 or 2009.”
ing institution that limits their capital already taking too much depreciation Bell, who has been working with
expenditures. and have alternative minimum tax trucking companies since the 1980s,
Trucking companies that choose to issues, so it may be to their advantage said leasing has become more attractive
lease can take several routes. In a capi- to lease. Others have net operating loss in part because of federal government
tal lease, the tax depreciation benefits carry-forwards that depreciation would emissions regulations. During the 1990s
stay with the lessor, the one granting keep them from fully monetizing. and early 2000s, trucking companies
the lease. In a true or fair market value Trucks are wasting assets, meaning were better off financially by trading in
lease, the lessee, or the one purchasing they decline in value over time. Keeping a three-year-old vehicle they bought for
the lease, can purchase the equipment at capital out of such a situation is another $92,000 and getting $50,000 or $60,000
the end of the lease or return it and walk reason to lease, especially for a new haul- in return. Now that emissions regula-
away. er or one with cash flow issues. tions have resulted in that same vehicle
Then there’s the terminal rental “It takes a lot of money to oper- costing $120,000, the numbers don’t
adjustment clause lease, or TRAC lease, ate a truck company, and the question work quite that well and the loss falls to
where the two parties negotiate a stated becomes, where do I want to tie up my the owner.
value at the beginning of the lease. Once capital?” said Richard Bell, CEO of Bell Bell and his partner, Jeff Lovelady,
the lease is over, the lessee can choose to & Company. “Do I want to tie it up into said that means trucking companies
either purchase the vehicle, or return it that tractor? Or do I want to put that might want to pass on that risk to leasing
to the lessor. If the vehicle sells for less money into other aspects of my business, companies such as Penske, Paccar and
than the stated value, the lessee owes the such as maybe not having a line of credit Ryder which in some agreements will
lessor the difference, and if it sells for on my accounts receivable or being able provide maintenance services on a cents
more, then the lessor owes the lessee the to have adequate working capital to pay per mile basis. In Ray’s case, a Ryder
difference. Tax benefits accrue to the les- for my licenses when they become due? mechanic will be working at his shop.
sor, and because the risk has been trans- Maybe I want to own my trailers, or I “If you get into a situation and all
ferred to the trucking company, monthly want to own my terminal.” the circumstances are right to lease a
rates can be lower. What about those who say they truck,” Lovelady said, “who better to
Jannetty said a TRAC lease was an simply want to own their vehicles rather work on your equipment than some-
attractive option until the economic than rent them from someone else? body with 800 centers across the United
downturn, when some of the vehicles Jannetty said he appreciates that desire. States.”
were not worth as much as expected and However, he said, it’s not always reason Trucking companies that choose
the lessees were left having to pay the enough to purchase rather than lease. to lease rather than purchase must
difference. For a time, the traditional fair “My response to them is, I completely understand what they are getting into.
market value lease gained in popularity. understand that. You’re going to be the Jannetty, who has been working in the
Now that used trucks have risen in value one using it. But did you take a loan out
in recent months and lessees know they on it? They’re like, ‘Well, yeah.’ I’m like,  42

18 ArkAnSAS trucking report | issue 2 2012