TRUCK LEASING THE EASY WAY - A SIMPLE GUIDE TO FULL-SERVICE TRUCK LEASING

Truck Leasing The Easy Way
John.Bossong@Nacarato.com | Bossong.John@gmail.com 2
Contents
Introduction...............................................................................................................................................3
Types of Leases.........................................................................................................................................5
The Full-Service Truck Lease.................................................................................................................6
Operating Lease Guidelines .................................................................................................................................6
Key Operational Benefits of a Full-Service Lease............................................................................7
No Residual Risk ........................................................................................................................................................7
Maintenance ...............................................................................................................................................................7
Vehicle Specifications.............................................................................................................................................9
The Technician Shortage ......................................................................................................................................9
Maintenance Network (Multiple Locations)..................................................................................................9
Rental Equipment...................................................................................................................................................10
Administrative and Legalization.......................................................................................................................11
It’s Not What You Do (Core Competency) ....................................................................................................11
Bundle It Up................................................................................................................................................................11
Key Financial Benefits of A Full-Service Lease............................................................................... 13
No Down Payment and Improves Cash Flow ............................................................................................. 13
Predictable Tax Deductible Payments.......................................................................................................... 13
Free Up Cash for Other Capital Needs........................................................................................................... 14
Summary: Advantages of the Full-Service Lease........................................................................... 15
Financial...................................................................................................................................................................... 15
Operational................................................................................................................................................................ 15
The FASB 13 Change for Operating Leases...................................................................................... 16
Key Questions to Ask Your Lessor...................................................................................................... 17
Helpful Industry Resources .................................................................................................................. 19
John Bossong ..........................................................................................................................................20

Introduction
It’s no longer a question of should a company outsource their transportation
needs. Many companies already outsource and it’s becoming more attractive every
year.
According to the 2018 National Private Truck Council Industry Benchmark Report, 52%
of the Class 8 vehicle population is leased, while 48% is owned. According to the
report, the previous year was 46% to 54% respectively. Thus, leasing gained 6% points
while ownership dropped 8%. The report also notes this is the first time in history that
leasing represents over half of the vehicle population (Source: 2018 NPTC Benchmark
Report).

It’s also interesting to note that full-service leasing represents 57% of all leasing
types. The report notes some interesting characteristics of leased fleets:
• Operate shorter trade cycles.
• Leased fleets are five times more likely to lease trailers.
• Leased fleets are more prone to lease their maintenance.
The critical question now becomes how deep does a company want to go with
outsourcing their transportation needs. Some choose to outsource everything.
Others utilize a combination approach. In fact, according to the NPTC Benchmark
Survey, 37% report a combination of ownership and leasing heavy duty acquisition
strategies (Source: 2018 NPTC Benchmark Report).
In this guide I’ll walk you through:
• Basic types of truck leases.
• The full-service truck lease.
• The key financial and operational benefits of a full-service truck lease.
• Key questions to ask your lessor.
• The basic revised FASB Guidelines.
• Helpful Industry Resources.
You may decide that leasing’s not for your organization. You may decide to give it a
try. Whatever your decision, I hope this guide is helpful in answering some basic
questions and provides you with some practical answers.

Types of Leases
There are multiple types of truck leases. Each customer need will be different.
Qualifying is crucial. Organizations acquire equipment for different reasons and in
different ways. A lot of decisions in today’s sales cycle are made through consensus.
Thus, there will be multiple people involved in the decision. This doesn’t complicate
the sale but it means the sales rep must be good at facilitating (leading) the sales
process.
A lease is a contractual agreement between an owner (lessor) and a renter
(lessee). In a lease, you agree to rent the use of the asset over a specific time period
for a specific amount. Here are some basic lease types:
• Operating (Full-Service Lease). The asset is retained on lessor’s books (for tax
purposes). The lessee agrees to pay for the use of the equipment over a fixed
term. At the end of the term, the lessee turns the asset in and walks away.
• Capital - Similar to a purchase. Shown as an asset and debt on the lessee's
books for accounting purposes.
• Full Service Lease – a lease that includes all services, maintenance, licensing,
substitute vehicles, over the road service and washing. Lessee pays a fixed
cost and mileage charge. Lessor pays for all the additional services included
in the lease. This is an operating lease.
• TRAC Lease - also known as a Terminal Rental Adjustment Clause. This is a
tax lease and when the lease terms, the lessor will sell the asset at a
predetermined set residual amount. The lessee must make up the shortfall or
receives the excess amount above the set residual when the asset is sold. For
example, if the residual is set at $15,000 and is sold for $18,000, the lessee
receives the excess $3,000. However, if the asset is sold for $12,000, the lessee
must pay the difference. Another option is for the lessee to refinance the
residual and continue the lease.
• Net Lease – the lessee pays a lower fixed payment each month but is
responsible for all other charges (maintenance, legalization, etc).
• Full Payout Lease – this lease usually carries a zero-residual value; thus, the
lessee pays for the equipment over the term of the lease. The lessor recovers
all the costs. These are typically capital leases.

The Full-Service Truck Lease
Operating Lease Guidelines
When leasing commercial assets there are two types of leases a company can utilize,
capital leases and operating leases. FASB (Financial Accounting Standards Board) is
used to determine whether a lease is an operating or capital lease. Below are the four
criteria. If any one of these criteria is met, the lease must be considered a capital lease
(purchase).
• There is an ownership transfer to the lessee at the end of the lease.
• The lease contains a bargain purchase option.
• The lease life exceeds 75% of the economic life of the asset.
• The present value of the lease payments exceeds 90% of the fair market value
of the asset.
Source: Investopedia.com
The Full Service Lease is a lease that includes all maintenance, licensing, substitute
vehicles, over the road service and washing. The lessor owns the asset for accounting
and equity purposes. The lessee pays a monthly lease charge for the right to use the
asset.
• It’s important to distinguish between a tax lease and a non-tax lease. In a tax
lease, the owner of the equipment (lessor) receives the tax benefits
(depreciation).
• Operating leases are considered tax leases.
• The payments made by the lessee are deductible for tax purposes. However,
the depreciation is captured in the lease payments over the term.
Leasing is about paying for the use of the asset, not ownership. Thus, the
lessee gives up certain ownership benefits but gains operational and financial
benefits.

Key Operational Benefits of a Full-Service Lease
No Residual Risk
The lessor assumes all the residual
risk at the end of the lease. Again,
the lessee is paying for the use of
the asset. The lessor is responsible
for selling the asset at the end of the
lease. Thus, the lessee turns the
truck in at the end of the lease and
walks-away. You have no exposure
to the conditions of the used truck
market. Which, can and do
fluctuate. Large lessors are capable
and experienced at selling used
assets. They have multiple resale
channels and hundreds, if not
thousands of buyers. Most will have
a specific department dedicated to
residuals with years of data to justify the values. Leverage their experience and
expertise.
Quick Tip: Make sure you perform a thorough walk-around the truck when you
turn it in. You should ask for and receive a signed copy of the vehicle condition
report with any and all billable damage noted. Take pictures of the truck and
of the final mileage reading. The lessee is responsible for any damage beyond
normal wear and tear.
Maintenance
This is a key component and benefit to a full-service lease. Especially with today’s
trucks becoming more technologically advanced each year. It’s the part of the
iceberg you don’t see after you purchase a truck and it can be expensive, especially
on the backside of the lease as the asset gets older. It’s part of the total cost of
ownership. The lessor is responsible for maintaining the asset and all costs
associated with the maintenance.

Here’s a look below the iceberg.
• Maintenance Records and a maintenance system (MIS).
• Parts and Inventory.
• PM Services.
• Tires, Rims and Casings.
• Shop Supplies.
• Technicians, Training, Recruiting, Payroll and Benefits.
• Shop Tools.
• Facility.
• Labor Hours for additional repairs.
• Emergency Road Services Costs.
• Towing.
• Truck Washing.
• Computer Equipment and Diagnostic Software.
• Delivery Costs - Hiking.
Large lessors are equipped and trained to handle truck maintenance in a cost
effective manner. They have scale. They also have systemic maintenance processes
set up to eliminate variation in maintenance activities. They maintain tens of
thousands of trucks and have years of predictive data and experience to work
with. Think about Chick-fil-A. Each one is the same. You get the same service at
every location. What you experience in Nashville, Tennessee is no different than what
you experience in Dallas, Texas. Little variation. Consistency. Customers “feel”
variation. When a truck is down, time is of the essence. Especially with the new ELD
mandate.
They also leverage their size, training, buying power and relationships with OEM’s,
vendors and suppliers to get the best possible pricing on equipment, parts and
supplies. This savings is passed directly to the lessee.
Quick Tip: One key in operating a truck is to determine the best “cycle” or
term. In essence, when is the best time to cycle out of the truck? Large lessors
are really good at determining this inflection point. They have huge amounts
of data that is predictive. Ideally, when the truck is costing more to maintain
than to replace, it’s time to cycle into newer equipment. Leverage the
expertise of the lessor (it’s their core competency) and let them help you
determine the best cycle time. It’s no longer good enough to say 6 years and
500,000 miles. The lessor’s goal is to minimize their total cost of ownership
and maximize your uptime.

Vehicle Specifications
Truck specifications are important. A properly spec’d truck makes all the difference
in fuel economy and efficiency. Both critical pieces of a truck’s profitability. In
addition, trucks are becoming outdated faster (obsolete). Similar to the computer or
phone you change every few years. Thus, the residual values may be less due to the
effect of technology. Large leasing organizations have departments dedicated to
vehicle specifications for multiple applications. They will typically buy large amounts
of trucks at one time and receive aggressive pricing from the manufacturer. They
then pass the savings on to the lessee.
The Technician Shortage
The technician shortage is real. It impacts almost everyone in the transportation
industry. Especially if you use commercial trucks as a carrier or private fleet. At some
point, you have to maintain them. You need technicians. You have to train, develop
and provide career path opportunities. It’s a major issue in the industry.
Truck Leasing companies are experts in maintaining trucks and hiring
technicians. They know how to train, develop and provide a career path for
technicians. It’s what they do. The large leasing companies have teams and
departments dedicated to hiring and training technicians properly. Providing a career
path for them. Leverage the lessor’s access to technicians and training. New
equipment engine technology is changing rapidly. The software and diagnostic
equipment needed to diagnose and repair trucks properly is expensive. If the lessor
hasn’t made the investment and can’t properly diagnose and repair the truck, you
need to consider other options. We’ll look at this later in questions to ask your lessor.
Maintenance Network (Multiple Locations)
Access to a lessors Emergency Road Service and maintenance network is
critical. Most of the leasing companies will have one. Either in-house or out serviced
through a third party. I’ll review the questions you need to ask the lessor later. But, it
is important to know who’s on the other side of the phone with your driver when a
truck is down. When you operate a fleet of trucks, setting up multiple vendors and
suppliers can be difficult. Large leasing lessors have hundreds, if not thousands of
pre-approved vendors already set up. They have a history of the good and bad. Thus,
they’ve eliminated your variation of choices. They are staffed and prepared to take
care of you in the event you need help on the road. You also eliminate dealing with
multiple invoices from multiple vendors.

Rental Equipment
Many companies that operate trucks will rent from time to time. Some choose to rent
for longer periods. The reasons vary.
• Heavy peak season demands.
• Replacement trucks while repairs are being made.
• Over the road breakdowns.
• Trying out new truck technology and models before going all-in.
• Business is strong but doesn’t dictate committing to an additional unit full
time.
• Flexibility. You can turn the truck in at any time. No commitment. But at a
higher price.
Most large leasing companies will have large rental fleets. The purpose is twofold.
One, there is a significant market for commercial rental equipment by itself. Second,
the rental fleet augments the full-service lease and contract maintenance customer
base with extra equipment as needed. It also provides substitute units when a
contract unit needs repair work. Most substitute units are accounted for in the
monthly lease rate. Thus, the lessee does not incur additional charges while their
lease unit is in the shop. Provided the repair is maintenance related.
Quick Tip: You can negotiate having substitute units removed from your lease
rate. This will lower you fixed cost. However, you risk additional rental charges
in the event your lease unit is down for an extended repair locally or over the
road. Substitute rentals act as an insurance policy. Hopefully you never have
to use it. But, I wouldn’t recommend not having it.

Administrative and Legalization
Unfortunately, if you operate trucks there are several administrative functions that
have to be completed.
• The truck(s) will need to be licensed.
• Fuel and mileage taxes have to be submitted (this is done electronically
now). There are several providers, check this one out at KeepTruckin.
• Safety training and compliance.
• Telematics and onboard communication, for example Geotab and Cyntryx.
This is a lot of stuff and it has a cost associated with it. Depending on the size of your
fleet, you will need a person handling each of these disciplines, if not more. Safety
and training could be multiple people. The good thing is, large leasing organizations
have departments dedicated to licensing, safety, legalization, and fuel and mileage
taxes. They also have access to telematic vendors and can have this baked into the
lease as well.
It’s Not What You Do (Core Competency)
Unless you are a for-hire carrier, trucking and maintaining trucks is not your core
competency. It is a means to an end. So, unless you are good at purchasing, specing,
maintaining and selling trucks, you will spend a lot of money that could be reinvested
into your people and business. Again, leverage the size, scale and expertise (it is what
they do) of the large lessors and focus on the USE of the truck and not owning it.
Bundle It Up
The key to leasing is all the services mentioned (with the exception of maintenance,
it is accounted for in the mileage charge) are bundled into a lease payment, including
the depreciation and interest. Thus, if you unbundled all of these services less the
financing, you would get a good idea of the costs. However, your costs may not be
as low as the lessor. Remember, they have scale and maximize their pricing, which,
is directly passed on to you (the lessee). Also, it’s what they do. Their core
competency.

Quick Tip – Net Present Value (NPV)
If you really want a good evaluation, perform a lease vs. own
analysis. Otherwise known as a net present value analysis. Ask the leasing
provider to do one for you as part of their proposal. You will need to provide
the financial and maintenance data to the lessor. Once you do that, they’ll
supply the analysis. Each lessor may require different information or perform
the analysis a little different but the output will be the same.
Or, you can perform the NPV yourself once you receive the lease rate from
the lessor.

Key Financial Benefits of A Full-Service Lease
No Down Payment and Improves Cash Flow
• One significant financial advantage to a full-service lease is no initial cash
outlay (no down payment). Most finance purchases are going to require a
down payment, 10% or more, depending on the credit risk. So, if you are
acquiring multiple pieces of equipment, the down payment can be
substantial. Under a full-service lease, there is no down payment.
• It acts as an alternative financing source. The lessor assumes 100% financing
of the asset for the lessee.
• The lessee also manages financial risk because the lessor typically sets an
aggressive residual value (resale value at the term). This reduces the
depreciation component of the lease payment. Interest is straight lined over
the term, whereas debt financing has a higher interest on the front end. So, on
the cash flow statement, leasing may improve cash flow with a lower payment.
• No backend selling and truck disposal costs (residual exposure). When the
lease is up, the lessee walks away from the asset (any truck damage must be
repaired. Normal wear and tear is acceptable). The lessor is responsible for
selling the asset and all the costs associated with marketing used vehicles. So,
cash flow is preserved.
Predictable Tax Deductible Payments
• The lease payment is comprised of two components, a fixed and variable
charge. The overall payment may be higher than a finance purchase, however,
all costs associated with it are bundled into the tax-deductible full-service
lease payment. It’s simplified. The fixed charge is billed in advance. Thus, each
monthly invoice will have a fixed charge for the current month and a mileage
charge for the previous month’s miles. That’s it.
• Eliminate or reduce variation in transportation costs. There are no other
invoices from the lessor unless you purchase fuel or have a repair invoice. So,
there shouldn’t be a lot of variation and unexpected expenses. It’s predictable.
The lessee can determine their transportation costs without having to sort
through multiple invoices from multiple vendors. It should be a flat, fairly
straight line over time rather than spikes up and down.

Free Up Cash for Other Capital Needs
• Preserve your capital. When you lease trucks, you don’t have to worry about
unloading valuable cash into trucks (a depreciating asset). Thus, you preserve
your internal capital and improve your access to external capital resources.
• In essence, you avoid using other sources of credit to fund the use of trucks.
Rather, leverage the buying power of the lessor to fund (finance) the asset. This
enables you to use cash to grow other areas of your business.

Summary: Advantages of the Full-Service Lease
Financial
• Increases cash flow and conserves capital for other internal investments.
• Predictable Budgeting.
• 100% Financing – no down payment.
• May improve certain financial ratios.
• Tax deductible (check with your tax advisor).
• Fixed monthly payments eliminate variation in transportation costs.
• Mitigates maintenance exposure.
• Leverages bulk purchasing power of the lessor.
• Eliminates residual exposure and remarketing costs.
• Reduces extra vehicle rental expenses.
• Mitigates breakdowns expenses and risk.
Operational
• Rigorous maintenance program.
• Additional services provided (subs, washing, administrative, licensing).
• Core competency focus.
• Hiring and training technicians.
• Tools, equipment and facilities.
• Reduced breakdowns, less downtime.
• 24-Hour Road Service.
• Managing fleet shifts to lessor (maintenance, safety, licensing, fuel tax
reporting, titles, maintenance records, washing).
• Equipment specifications handled by lessor.
• Shortened replacement cycles. Obsolete equipment is mitigated.
• Driver retention and morale improves due to newer, more reliable equipment.
• Planning for future equipment is easier and predictable.

The FASB 13 Change for Operating Leases
Previously, before 2019, full-service leases were considered off-balance sheet
financing. The liability was simply footnoted as an expense on the balance
sheet. However, the new Financial Accounting Standards Board FASB 13 (FASB 13,
ASC 842, ASU 216-02 under FASB’s new coding structure) rules took effect in 2019 for
public organizations and will go into effect for private organizations in 2020.
Under the new guidance, a lessee will be required to recognize assets and liabilities for
leases with lease terms of more than 12 months. Consistent with current Generally
Accepted Accounting Principles (GAAP), the recognition, measurement, and presentation
of expenses and cash flows arising from a lease by a lessee primarily will depend on its
classification as a finance or operating lease. However, unlike current GAAP—which
requires only capital leases to be recognized on the balance sheet—the new ASU will
require both types of leases to be recognized on the balance sheet (Source FASB).
Full-Service truck leases are considered operating leases. According to a recent
Forbes article operating leases do not transfer ownership of the asset and payments
are made for the usage. The article notes that prior to the changes, in operating
leases both the assets and liabilities were not recorded on the balance sheet (even
though the organization was using the asset and contractually obligated to pay the
lease). Now, it is required that operating leases have the associated asset and liability
recorded on the balance sheet at the present value of future lease payments (Source,
Forbes 5/1/2018). Thus, the assets are not allowed to be hidden (footnoted) and must
be recorded as a liability, not a debt on the balance sheet.
According to LaSalle Solutions the balance sheet impact is a liability, not a
debt. Thus, credit rating shouldn’t be affected. All lessees will be required to
recognize all right-of-use (ROU) assets and lease liabilities on the balance sheet to
distinguish owned versus rented assets. Some financial ratios and measures will
change. But, because the present value (PV) is listed on the balance sheet for
operating leases, they may still have the best impact on ROA. LaSalle also noted in
the article that the new balance sheet requirements do not apply to assets rented for
less than 12 months (Source LaSalle Solutions, 7/23/2018).
According to NewConstructs.com the single largest change in FASB’s ASU 2016-02 is
the requirement of operating leases to have the associated asset and liability
recorded on the balance sheet at the present value of future lease payments. (Source:
New Constructs.com). New Constructs also notes that the new standard still requires
just one lease/rental expense reported. However, because assets are now
recognized, impairments will also be recognized on the income statement, outside of
this single lease cost (Source: New Constructs.com).

Key Questions to Ask Your Lessor
Choosing the right full-service lease partner to take care of your fleet is
important. After all, you will be trusting them to maintain the equipment you use to
generate revenue or deliver your product. In essence, you’re hiring someone. Do
they have the capabilities to take care of your fleet so you can focus on your core
competency? The answer is in the questions.
1. Network coverage - Where do they have locations specific to your area of
operation and are they full-service locations?
2. 24-Hour Emergency Road Service - How is it staffed? Internal or external
employees? What is their background? How do they measure outside vendor
performance?
3. Truck to technician ratio in shops? For example, do they operate at 20:1, 30:1, 40:1.
4. What engine and / or maintenance certifications do their technicians have?
5. What tools and engine diagnostic software do they use?
6. Do they have a maintenance information system (MIS) to track, plan, organize and
coordinate repairs? Will you have access to this system? What predictive
maintenance data can they provide weekly, monthly and quarterly?
7. How many techs are certified?
8. What is their parts inventory and mix? Do they use OEM parts or aftermarket
parts?
9. Can they file warranty?
10. How do they train, develop and recruit techs?
11. What is the average tenure of their techs?
12. What is their technician turnover %?
13. Do they have safety and compliance programs?
14. Rental fleet size and equipment mix?
15. Are they stand alone or affiliated with a dealership?
16. What telematics hardware and software do they utilize?

17. What OEM brands can they lease?
18. Can they lease specialized equipment?
19. Does the lease contain an annual CPI (Consumer Price Index) increase?
20. What happens if they can not provide a substitute vehicle?
21. How do they solve customer problems? Is a resolution process in place?
Each customer is different and needs vary. What’s important to one may not be
important to another. Each lessor has certain strengths and weaknesses. Make sure
your lessors strengths align with your needs.

Helpful Industry Resources
Below are links to truck leasing industry resources that will be helpful in navigating
your truck leasing decision.
Truck Rental and Leasing Association (TRALA)
National Private Truck Council (NPTC)
Commercial Vehicle Safety Alliance (CVSA)
Financial Accounting Standards Board (FASB)
Federal Motor Carrier Safety Association (FMCSA)

John Bossong
Contact Information
John.Bossong@Nacaratotrucks.com
Bossong.John@gmail.com
www.linkedin.com/in/johnbossong
615-924-1083

Disclaimer
This guide is designed to provide reasonably accurate and authoritative information about full-service truck leasing.
It is based on information known by the author and includes information that is publicly available from several sources
and industry authorities. This guide is intended as a helpful resource and tool for anyone considering truck leasing.
This guide is in no way intended to provide legal, tax, accounting, or additional professional services advice. The
author does not represent this information to be without error. The author has taken efforts to review all the sources
and facts used. The author assumes no liability for any errors, misprints, ambiguities or omissions contained in this
guide and accepts no liability for any loss or damage caused by such error, misprints, ambiguities or omissions for any
actions taken by others based on any information contained in this guide.
The information in this guide is for informational purposes only. I am not a lawyer or accountant. You should always
seek the advice of a professional before acting on something that I have published or recommended.
No part of this guide shall be reproduced, transmitted, or sold in whole or in part in any form, without the prior written
consent of the author. All trademarks and registered trademarks appearing in this guide are the property of their
respective owners.
Users and readers of this guide are advised to do their own due diligence when it comes to making truck leasing
decisions and all information that has been provided should be independently verified by your own qualified
professionals. By reading this guide, you agree that the author is not responsible for the success or failure of your
business decisions relating to any information presented in this guide.
Copyright 2019 John Bossong All Rights Reserved

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