While full-service leasing has long been a staple of the trucking industry, there still are many myths surrounding it. I talked with my colleague. Joe Gallick, who is senior vice president of sales for NationaLease, about what he thought is the top myth about full-service leasing. He said that many fleets think that full-service lessors charge a much higher cost per mile than the actual true costs.
A fixed and variable pricing method is commonly used in full-service leasing. Typically, the fixed portion of the lease includes the asset’s procurement and end-of-term disposition, depreciation, interest, legalization, replacement vehicle insurance, and other operating and administrative overhead costs. The variable—cost per mile—portion is based on the anticipated amount of preventive maintenance service and expected replacement items like tires, brakes, lubricants, fluids, and parts.
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This cost accounting should fairly represent all the identifiable maintenance and related costs projected over the term of the lease. But there can be unexpected events like roadside breakdowns, premature component failure, etc. These add an additional risk for the lease provider, which is factored into the total cost of operation equation. Gallick said he believes the easiest, and most transparent, way of displaying the combined full-service lease monthly payment is a projected, straight-line basis over the term of the lease. A medium cost per mile can counterbalance the effects of interest and maintenance expenses over the length of the lease.
The result for the fleet is a predictable total cost of operation that can be budgeted. Especially for the private fleet, this predictability is valued by chief financial officers. The fleet also transfers the risk of unexpected repair costs—which can be significant—to the lessor.
While it is logical to believe that the actual cost per mile should be less than the invoiced cost per mile during the early years of the lease, it is also logical that the opposite would occur in the latter years of the agreement. However, with a full-service lease, the costs are consistent across the term of the lease, allowing the fleet to know exactly what its expenses are going to be throughout the entire term of the lease.
Jane Clark is vice president of member services for NationaLease. In this position, she is focused on managing the member services operation as well as working to strengthen member relationships, reduce member costs, and improve collaboration within the NationaLease supporting groups. Prior to joining NationaLease, Clark served as area vice president for Randstad, one of the nation’s largest recruitment agencies, and before that, she served in management posts with QPS Cos., Pro Staff, and Manpower Inc.
This article originally appeared on FleetOwner.com.
