Softening Market Could Push Many to Leasing

by Scott Mishoe

Scott Mishoe is the director of Business Development for National Sales at Ryder. He has spent nearly 32 years in transportation leasing, maintenance, and life cycle cost management, and has been a Certified Transportation Professional (CTP) through the National Private Truck Council since 2001. Mishoe spent the early half of his career with Ryder, and from 1997-2014, he held sales and management positions with PHH First Fleet (now Element Financial), LeasePlan, Fleet Advantage, Amerit Fleet Solutions, and AmeriQuest. Mishoe's professional expertise touches on all areas of fleet finance, procurement, and operations efficiency in helping fleets benchmark their total cost of ownership against other alternatives.

Ryder’s Scott Mishoe makes the argument that with lower fuel prices and other factors weakning the market for used and new trucks alike, many may turn to leasing.

Over the past six months, the transportation markets have become less stable, leading to some significant issues, which are the result of worldwide economic issues that have contributed to a down U.S. stock market, impacting many public companies in terms of stock price and earnings. Even freight demand has dropped with carriers reducing equipment orders. For freight fleets, it all starts with fuel prices. Some economists feel that we are now at an unhealthy point in fuel prices. Just ask Texas and Oklahoma, where unleaded gas is below $1.40. Companies in the energy sector have cut personnel, and trucks are sitting along the fence. Used trucks have started to flood the market and prices have come down. Regardless of price, many trucks just aren’t moving. OEM’s have seen similar softening in new truck demand, leading to layoffs and short lead times for new trucks. With the drop in volume, many dealers have approached larger fleet operators with deep discounts.

We all know that used truck prices are very cyclical and we’ve been in an up market for many years, so the pendulum appears to be swinging back in the other direction. For many fleets, leasing is now a more viable option as the quest for capital gets tougher and the back end risk is greater. Leasing companies are also seeing drops in volume, but are more willing to take the back end risk when assigning residual values in their lease pricing models. For those looking at a full-service lease solution, there is still a significant shortage in technicians along with equipment downtime concerns with the newest engine/transmission technology, although that is easing quite a bit. The question of how long to keep equipment becomes a complex decision based on “big data,” fuel economy increases (which mean less with low fuel prices), downtime/maintenance cost, the quest to attract/retain drivers who prefer new equipment and residual risk.

When all those elements of risk are present, full-service leasing (FSL) becomes a strong potential solution. Larger leasing companies can offer a safe haven through lower equipment costs, higher resale, a known maintenance/service cost and regular replacement of equipment. With customer service at a premium, FSL can be a safer solution when the economy’s troubled waters become evident. Those leasing companies often have surplus equipment that can be utilized at a discount and offer immediate relief with well-spec’d, efficient equipment. For many, when the cost between ownership and leasing is close, leasing is a safer bet.

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