OOIDA information services
More and more company drivers are reaching for that infamous brass ring that will allow them to realize their dream of becoming an owner-operator. Motor carriers who want to update their fleets but don’t want to risk losing money on the trade-ins are finding a solution to this problem via their own company drivers and others who aspire to become owner-operators. It’s called the lease/purchase option, and motor carriers don’t have to look far for eager drivers searching for some way to achieve their dream of owning a truck.
The lease/purchase option allows motor carriers to increase their fleets without having to hire more drivers, and the driver agrees to pay for the equipment and its maintenance so he/she can experience the pride of ownership. But is this really a dream come true, or is it the beginning of a really bad nightmare for these unsuspecting drivers?
Question: I ran into some bad luck a couple of years back and lost my truck when I filed bankruptcy. It’s still my dream to be an owner-operator. I’m considering a lease/purchase deal with a motor carrier. The company recruiter that I’ve been talking with says there’s really no risk involved. What do you think?
Answer: When the recruiter says there’s no risk involved, he’s only partially correct. There’s little or no risk for the company; however, there’s always a risk involved for the driver who is looking to start his/her own business. If the lease/purchase fails, the company can simply put another aspiring owner into the truck seat. However, it’s not so easy for the driver, particularly since most of these contracts are written to benefit the carrier while leaving the financially ruined trucker with the responsibility of making payments on a repossessed truck until another victim comes along.
So if these lease/purchase arrangements are so bad, why do so many truckers sign up for them? We’ve all seen the advertisements. “Own your own truck — No down payment — No credit checks.” It sounds like the perfect deal for those with blemished credit, or no money saved for a down payment; however, let’s take a good look at the reality behind the hype.
Ask anyone in OOIDA’s Business Services department and they will tell you lease/purchase plans are bad news for most truckers. Their files are overloaded with complaints about deals gone sour. Although the trucker is making the payments with the belief that he/she is purchasing ownership in the truck, the truth is in most cases, they are only rental payments. The option to purchase the truck comes at the end of the lease — if the driver makes it that far. Unfortunately, most don’t. Those few drivers that do usually end up paying thousands of dollars more for the truck than what it is really worth.
On the other hand, lease/purchase arrangements are very advantageous to the motor carrier. The new “owner-operator” assumes most of the risk, not only with the lease payments, but also with other costs such as maintenance, insurance, fuel and state and federal taxes, just to name a few.
Most lease/purchase contracts call for reserve accounts where deductions are made from the driver’s earnings to put aside money for major repair expenses, but often, money for smaller repairs does not come from the reserve fund. These smaller repairs come straight from the driver’s pocket, or may be deducted from what is left of his/her settlement check. All of these deductions can add up quickly, and frequently, drivers find that there’s nothing left to pay the bills, much less to take to the bank after a particularly tough week. In addition, the motor carrier sometimes confiscates these so-called reserves or maintenance accounts if the lease is broken. OOIDA has had some success fighting this practice in court, but it continues to be a problem in the lease/purchase plans of many carriers.
In order to withstand the numerous deductions that most lease/purchase arrangements dictate, a trucker must be able to count on some good loads. Initially, these loads may come with some regularity, but according to many of the complaints we’ve received, the most lucrative loads slow down considerably and often stop completely, depending on how far the trucker has progressed toward the remaining balance of the lease period.
Because it is advantageous for the motor carrier to force the owner-operator to fail and ultimately break the lease, allowing the carrier to keep the escrows and set up another unsuspecting driver in the repossessed truck, it is a common practice for dispatchers to exercise control in this way.
It’s a real moneymaker for the carrier, but for the majority of aspiring owner-operators who are trying to make their dreams come true, lease/purchase arrangements have led to indentured servitude and financial ruin.
Most drivers end up paying for the carrier’s equipment, including the maintenance costs, administrative fees and whatever else the carrier includes in the lease, and never ultimately own the truck. Meanwhile, the carrier is busy recruiting the next hopeful trucker to replace the one it just victimized, and laughing all the way to the bank.
Unfortunately, the driver is not the only victim. Ultimately, lease/purchase arrangements affect the entire trucking industry negatively. As long as carriers are able to persuade drivers to essentially “buy a job” from them in hopes that they will eventually realize their dreams of becoming owner-operators, they can afford to haul cheap freight, which forces freight rates lower, thus hampering the ability of all truckers to make a decent living.
If, after considering the minimal odds for success, you still opt to go with a lease/purchase arrangement, by all means, read the contract very carefully. If you don’t understand the terms, enlist the assistance of a professional who will assist you.
Call OOIDA’s Business Services department (1-800-444-5791) to see whether any complaints have been documented against the company whose plan you are considering. Have both your attorney and your accountant review the proposal and answer all of your questions before you sign anything. Don’t let your dream to become an owner-operator overrule your common sense, or you may find yourself living a real nightmare.
If you have questions that you would like answered, please e-mail them to email@example.com or send them to me at PO Box 1000, Grain Valley, MO 64029. We can’t publish all of your questions in Land Line, but you will receive a response even if your letter is not published.