‘Run the numbers’

The allure of being an owner-operator can be very appealing. Who doesn’t want to be their own boss? However, that freedom comes with a sizable financial investment. Some drivers turn to lease-purchase agreements to help with that investment. The Owner-Operator Independent Drivers Association cautions their members from taking this path.

Drivers who enter into lease-purchase agreements have the same goal of eventually owning their equipment. The problem, according to OOIDA regulatory and compliance expert Tom Crowley, is that it rarely works out that way.

“On some of these lease-purchases, I would say that there is no intent for the driver to ever own the truck,” he said. “It’s just the intent of the carrier to let the driver do all the work and pay for the truck and pay for all the repairs.”

Many drivers choose to go the lease-purchase route for the independence that comes with being an owner-operator. However, OOIDA regulatory and compliance team leader Jim Jefferson explains that lease-purchase drivers are still under the control of a carrier. According to Jefferson, that control held by the carrier can lead to some precarious situations.

“The carrier also maintains control of how much money that truck can earn, because the truck is leased on to the carrier that’s doing the lease-purchase with the contractor,” he said. “You make them mad, and they can cut your hours back. So now instead of running 2,500 miles a week, you’re running 1,000 miles a week. If you can’t afford to make your payments, as soon as you default on that, they can take it back. A lot of times, carriers are making as much or more money off of their lease-purchase programs as they do the freight that’s being hauled in those trucks.”

That sentiment is echoed by Crowley, who cautions drivers from entering into lease-purchase agreements that sound too good to be true.

“They’re geared for the company to make money, not necessarily for the drivers to succeed. Any time you have a situation where somebody else has total control over whether you succeed or fail, it kind of puts you in a bad position,” he said. “There are many different lease-purchases out there. I’m not one that will tell you that every one of them is bad. But I will tell you that when you come to the table and … you’ve got nothing but the clothes on your back and somebody says, ‘I’m gonna make you an owner-operator,’ be leery. Be very leery.”

It’s this predatory nature that has led the Federal Motor Carrier Safety Administration to launch the Truck Leasing Task Force. Part of the Biden administration’s Trucking Action Plan, the task force was mandated by the infrastructure legislation that passed last year. Among the goals of the task force will be to evaluate the effects of commercial motor vehicle lease arrangements and to discuss best practices for future agreements.

Think it won’t happen to you? Aron Lynch with OOIDA’s Business Services Department says he fields plenty of calls from drivers who find themselves in a bad lease-purchase agreement.

“I’ve talked to about four guys who have actually walked away from their lease-purchase and actually had a good time doing it with no issues,” he said. “All the other calls that I’ve received on something like that, which is in the hundreds, something always goes south with them. I would say that’s a top two issue up here that we get calls on.”

So what does he tell members who are considering a lease-purchase option?

“I tell them that I hardly ever see someone actually walk away with the truck,” Lynch said. “And I tell them that I would never, ever advocate for someone getting into a lease-purchase. I don’t suggest it by any means to anybody.”

According to data from the OOIDA Foundation, around 28% of Association members who are owner-operators have entered into a lease-purchase agreement at some point. Of those, only 60% say they obtained the title to the truck.

Drivers need to be aware of some of the tell-tale signs of a bad lease-purchase agreement, including:

Balloon payments
Mandates from carriers that require the truck to remain in their possession and only run for them
Deferred maintenance agreements that increase the overall cost of the original lease
High termination fees

It’s not easy – if even possible – to get out from a bad lease-purchase agreement. Drivers are often misled with the term “walk-away lease” and being told they can leave their contract if they so choose. However, Crowley said that’s simply a term used to rope people into signing a bad deal.

“That’s terminology that recruiters use, that ‘walk-away lease’ phrase,” he said. “I have never once – and I have reviewed probably hundreds of these purchase leases – I have never once seen that terminology in a lease, ‘walk away.’ So if you owe the carrier money and you default, you still owe that money. There’s no walking away.”

In fact, Crowley said many lease-purchase contracts are often lengthy – some up to 40 pages – and full of language the average driver wouldn’t understand. As a service to its members, OOIDA’s Business Services Department offers a complimentary review of lease-purchase agreements.

Additionally, a free lease-purchase calculator can be found on OOIDA’s website. This tool can chart numerous variables – including fuel costs, mileage, insurance and maintenance escrow – to determine the profitability of a lease-purchase agreement.

For drivers considering the jump to becoming an owner-operator, the Association’s Truck to Success can be a tremendous resource. The three-day course provides detailed instruction from industry experts on a variety of topics designed to assist drivers in developing a successful business plan. This year’s course is scheduled for Oct. 25-27 in Blue Springs, Mo.

One should consider all the options and do their homework before entering into a lease-purchase agreement.

“Have you done the math? Have you run the numbers? Go through that contract and figure out exactly what the chargebacks are going to be, be realistic about the miles that you’re going to get, and then run the numbers,” Crowley said. “And usually, right there, you can see that it’s not going to work.” LL