Lift Truck Tips: Leases give lift truck customers more leeway
Traditionally viewed as restrictive, new finance practices tailor leases to customer needs.
in the NewsMajor changes in air cargo freighter market driven by e-commerce, reports consultancy Maersk Line’s acquisition of Hamburg Süd gets sales and purchase agreement approval AAR reports mixed carload and intermodal volumes for week ending April 22 BTS reports February gain in U.S.-NAFTA trade U.S. ports may face difficult financing decisions, says Fitch Ratings More News
The concept of leasing lift trucks once meant adherence to a rigid contract that could result in steep penalties at the end of a term. Payments might have been consistent through that term, but they’d remain consistent despite low utilization. Tina Goodwin, director of financial services for NACCO Material Handling Group, says leasing is no longer a restrictive premise.
“Customer demand has forced finance partners to become much more flexible,” says Goodwin, who adds the numbers tell the tale. “I’ve seen it flip from one side to the other. I’d say 80% of our customers lease equipment, as opposed to the 30% to 40% just 15 years ago.”
Fifteen years ago, big companies bought equipment outright, kept it too long and ended up with very high maintenance costs, says Goodwin. Customers figured since they owned the equipment they would get as much use out of it as possible and run it into the ground. Now, fleet management techniques have established economic life cycles and have enabled customers to do much more efficient replacement planning. Of NACCO’s national accounts with fleets of 50 or more, nearly 95% lease, says Goodwin.
“Customers can now spend as little as possible for the best possible value,” says Goodwin. “If you want to keep your costs as low as possible, consider leasing.”
Rule one, according to Goodwin, is to never underestimate or overestimate the hours of use over the course of a lease term. Underestimation may reduce the payment in the short term, but the customer could see massive overage costs at the end of the term. Underestimation can also add up, says Goodwin. For instance, a lift truck that sees only 2,000 of its 2,500-hour annual allotment will cost the customer a full 2,000 hours of unused time. Goodwin says as many as 80% to 90% of lift trucks have unused time when returned at the end of the lease term.
The first step to accurate planning is data collection, and customers should dial in their usage figures to within a couple percent margin of actual before signing a lease. But if business picks up or slows down in the months and years to come, a customer can always contact their finance partner to adjust lease payments or lease term on the fly, says Goodwin.
“A customer should never be afraid to call us and notify us of any change,” she says.
Many finance partners now offer the option to bill by the hours of use, and might contract for 12,000 hours that could take anywhere from 40 to 70 months to accrue. In one variation of the hourly lease model, an 80% minimum usage charge is reconciled annually, meaning a customer with a lift truck that goes unused in any given month will pay zero dollars for that month. Though heavily dependent on robust fleet data measurement, the hourly lease model allows customers to more accurately tie revenues to expenses.
After all, says Goodwin: “Fleet and finance go hand in hand.”
Read more Lift Truck Tips.
About the AuthorJosh Bond, Senior Editor Josh Bond is Senior Editor for Modern, and was formerly Modern’s lift truck columnist and associate editor. He has a degree in Journalism from Keene State College and has studied business management at Franklin Pierce University.
Subscribe to Modern Materials Handling Magazine!Subscribe today. It's FREE!
Find out what the world’s most innovative companies are doing to improve productivity in their plants and distribution centers.
Start your FREE subscription today!
2017 Warehouse/DC Equipment Survey: Investment up as service pressures rise Putaway 101: Everything in its Place View More From this Issue