Some operators try to avoid the hassles of ownership, including unpredictable costs, through full-service leasing. It works for Alan Otto, who went from being a one-rig owner-operator in Phoenix to a fleet of 350 combination vehicles in six states, hauling construction aggregates and compacted trash from cities to landfills. He was accustomed to buying and maintaining his power units and still does that for many of them, and for his transfer and belly dump trailers. But new business in 2012 caused a change.
“We picked up two jobs and needed 20 trucks,” recalled Otto. “They were dedicated runs and required some very specialized equipment. One was for heavy-duty tractors to pull double 40-foot belly dumps for a freeway project in Phoenix. The other 10 trucks were for a waste hauling operation for a contract with Waste Management.
“We were in a depressed market in the Phoenix area and didn’t want to take on another round of debt. We originally started looking for used equipment so we could conserve capital, but we couldn’t find what we needed with the right specs. Ultimately, leasing with PacLease gave us the best solution – we were able to run new trucks, spec’d exactly as we wanted them, while at the same time we limited our cash outlay. We also minimized operating expenses.”
The tractors are Peterbilt 365 daycabs with different specifications for each operation: 450-horsepower Paccar MX-13 diesels with Allison automatic transmissions and extra-high-rated axles for the freeway project, and MX-13-455s with Eaton UltraShifts and moderately rated axles for the trash hauling. Each runs 20 hours a day on two shifts. Otto let PacLease handle maintenance.
“We have our own shops for our owned vehicles, so I know how difficult it is to schedule and stay on top of maintenance,” he said. “PacLease really takes care of us and handles all our maintenance needs, and they know that uptime is critical to our operation – especially since we have specialized equipment. In fact, that was an area we covered quite thoroughly when we were working with them on the lease package. We have a 98 percent on-time delivery rate in our sand and gravel operation and we couldn’t waver from that. And we haven’t.”
With the modern MX diesels and proper gearing, fuel economy with the high-mile tractors has been 8 percent better than with other units that Otto owns. More recently, he added 60 more tractors, Peterbilt 567s this time, for trash hauling out of Salt Lake City and Denver. Through PacLease, Peterbilt dealers in those cities – Jackson Group in Salt Lake and Rush in Denver -- perform the maintenance, some of it at Otto’s locations. Otto’s own shops do some minor repairs and bill the costs to the leasing company.
“One of the benefits of leasing is knowing what our monthly costs will be, and not having to worry about maintenance of the vehicles,” he said. “This way, when we bid on a contract, we’ll know what our income will be and offset that against our major expenses so we can really put together an accurate bid. We don’t want to lose money on a bid.”
At the end of the full-service lease, Otto has the option to return the trucks or pay the residual value and add them to their fleet. “This really takes the risk out of the lease and gives us options,” he said. “Our lease rate is based off the residual, and it’s always a guessing game as to where the used truck market will be five-to-seven years down the road. With our arrangement we can either keep the trucks if we feel that will be an advantage to our company, or we can return those trucks to PacLease.”