Leasing passes the road test

Nation's Business, May, 1997 by Julie Candler

A new fleet of heavy-duty trucks arrived at PWS Foods, Inc., in Grand Prairie, Texas, in 1993. Since then, the refrigerated trucks have made daily deliveries to supermarkets, convenience stores, restaurants, and food services, supplying customers in the warm climes of northern Texas with cold treats such as national brands of ice cream and other frozen desserts.

PWS had been leasing trucks from three companies but decided in 1993 to simplify logistics by using just one. After the dessert distributor switched to PACCAR Leasing (known as PacLease) of Bellevue, Wash., it discovered another advantage to its new arrangement.

"We liked the fact that we were able to get a whole new fleet," says Arnold O. Felner, executive vice president for administration at PWS, which generally has about 75 employees. "There's no way that a company our size could invest in vehicles and have enough capital to run a business."

Another benefit of leasing cars and light- and heavy-duty trucks is relief from the responsibility of servicing the vehicles.

PWS, like many other companies with fleets of heavy-duty trucks, contracts for full-service leasing. "We like the convenience of having repair and maintenance service available 24 hours a day, seven days a week" for the company's 30 Mack, UD, and Peterbilt trucks, says Felner. PacLease mechanics visit the firm nightly to do routine maintenance, wash the vehicles, and check the refrigeration units. "It's important because ice cream can go bad in 20 minutes," Felner says.

Full service frees the lessee from environmental and regulatory concerns as well. When a firm such as PWS operates its own shop for fueling and servicing vehicles, it takes on the burden of conforming with regulations such as those on disposal of toxins. With full-service leasing, PacLease assumes the risk for any liability or violation connected with these regulations.

Felner also likes the flexibility that leasing offers in scheduling routes and loads. "When we have an occasional need for a tractor-trailer combination for a special job," he says, "PacLease provides it."

PacLease helped determine the specifications of components such as transmissions for PWS's new trucks, says Felner. 'We told them our needs--like trucks with a short turning radius to pull up to the backs of stores--and they came up with the right vehicles."

Another company that has benefited from full-service leasing is DiCarlo Food Services, Inc., in Holtsville, N.Y. DiCarlo dropped vehicle ownership and in-house maintenance last July and contracted with Miami-based Ryder System, Inc., for full-service leasing. DiCarlo's 33 trailer-hauling tractors and five medium-duty trucks distribute meat, produce, and frozen foods to restaurants and food services in the New York City area.

Ryder routes two maintenance people each day to DiCarlo. "One mechanic arrives at 4 p.m. to work on vehicles returning from their daily rounds," says Anthony Yodice, DiCarlo's vice president of operations. "Another shows up at 4 am. to be certain each loaded truck starts and is ready to make early-morning deliveries as scheduled."

Scott Saperstein, marketing coordinator at DiCarlo, says that "initial figures show leasing is far superior to what we had before. It's more cost-effective, and we get greater productivity from the drivers."

Increased Efficiency

As president and CEO of the Truck Renting and Leasing Association in Alexandria, Va., J. Michael Payne can cite other advantages for businesses that lease their trucks. Truck-leasing companies, he says, are putting the most fuel-efficient, safest, lowest-maintenance, and most environmentally friendly trucks available onto the nation's highways.

"Their customers are operating fleets that aren't any more than four to five years old," Payne says. "Some fleets are getting smaller because they get more-efficient information and management systems through lease companies. That enables them to get more work done with fewer vehicles.

"In addition, lease-company experts provide technology and other expertise so their customers' personnel can devote resources to being in retailing or whatever their business is," says Payne. "Leasing companies today offer servicing, registration, handling of taxes, and fuel-system management."

Even though the leased vehicles are not on the lessee company's books, the monthly leasing fees can be debited as a business expense. Explains Rodney J. Couts, executive director of the independent lessors who make up the National Vehicle Leasing Association (NVLA) in Burlingame, Calif.: "For most businesses, leasing equates to a higher tax write-off. They can write off the cost of payments, which usually exceeds what the cost of depreciation would be for vehicles if a company owned them."

Raymond L. Smith, president of U.S. Fleet Leasing m San Mateo, Calif, says leasing is "a better use of cash flow versus putting out the full purchase price. Lessees can use that money to invest m their business without investing valuable capital m an asset that's depreciating and is not going to make any money for them."