Features
Lease or fleece?

By Clarissa Kell-Holland, staff writer
With OOIDA staff

 

Not everyone is prepared to be an owner-operator.

If you have no down payment for a truck and are not eligible for bank credit, you should seriously consider whether being an owner-operator is for you. Sure, there are motor carriers that will offer you a deal that will put you behind the wheel of a truck. Too often, however, such deals give drivers no real opportunity to become independent and often leave them worse off after lease termination than they were before.

The truth-in-leasing regulations can protect drivers from some of the abuses by motor carriers, but regulations can do nothing to protect a driver from economic ruin if he attempts to earn a living hauling cheap freight and paying his carrier hundreds of dollars a week for a truck he will never own.

Everywhere you look, you see creative plans offered by motor carriers. The booming popularity of these programs is alarming. This article shares a few of the stories OOIDA has heard from member truckers and analyzes why most of the programs are essentially designed to fail.

Profit center or ‘American dream’ provider?
Michael Fife works for Salt Lake City truckload giant C.R. England. He is the corporate vice president of the independent contractor division. He says that C.R. England made the decision some time ago to get out of the truck leasing business – instead partnering up with Horizon Truck Sales and Leasing.

“We saw a long time ago that it’s kind of fraught with risk to be kind of directly controlling them (equipment leases),” he said. So Horizon does it for them.

He said Horizon, through its lease programs, is providing the “American dream” to drivers who may not have the down payments or credit to get a truck on their own.

So what does it cost? In addition to an average base $505-per-week truck payment, drivers at C.R. England are charged an additional 14-cent “variable mileage rate.”

“This is a means by which the drivers don’t have to feel the full brunt of the rising cost of equipment if they have a down week or two. So (Horizon) came up with a variable mileage payment,” he said. “The bottom line is there is a cost to the equipment, but how do you package that up and make it palatable for a certain individual who otherwise may not be able to get equipment on their own.”

Based on 3,000 miles, this variable rate amounts to another $420 per week. So a driver’s actual leasing payment to Horizon may be around $925 per week or higher depending on the number of miles run – the more miles, the more taken out.

A sales agent at Horizon’s Salt Lake City office, who did not want to be named, told Land Line that C.R. England drivers have several options when signing on.

She said most drivers lease their trucks for six months through the “demo” lease program, while others sign on for a three-year lease deal with balloon payment. They accrue no equity in the truck during those 36 months, but at the end they have the option to purchase their trucks for approximately $45,000.

Drivers who do the demo lease with Horizon are automatically enrolled in an awards program in which drivers earn points for “being on time with loads and being a good driver.” After their six-month leases are up, she said drivers can qualify to enter a lease-purchase program where the credit check will be waived, and price and down payments will be reduced.

Fife stated that approximately 75 percent of the company’s fleet now consists of independent contractors. Of that percentage, Fife said he isn’t sure of the exact split, but that the “grand majority” of C.R. England drivers are in some type of lease program.

Sign on the dotted line
OOIDA Member Jack Mudgett admits he was at a crossroads in his life when he came across a C.R. England advertisement promoting their CDL driver training schools.

What hooked him in to signing on was that he was guaranteed a job with the company at the completion of the program.

Anxious to hit the road as a solo driver once he completed his schooling in Burns Harbor, IN, Mudgett said he was told he’d have to wait approximately 90 days before he would be assigned a company truck. He would receive just $25 per day in the meantime.

However, Mudgett was told, there was another option if he was interested in starting his trucking career ASAP.  Horizon, located adjacent to the school, could put him in a leased truck right away.

Once he signed on the dotted line, Mudgett was on the road to a “demo” six-month leasing nightmare. He had hoped to phase in to a full lease-purchase. Mudgett said that could have earned him points to use in negotiating his next option. For example, the points could be used toward waiving a credit check and lowering the down payment on the truck.

After just two weeks on the road, Mudgett knew he wasn’t going to stay with C.R. England after his contract was up.

“In fact, I went in the hole for about $10,000 while I was there because I never made a dime. Just a few days ago I received a letter … stating I am still on the hook for another $2,000 for my schooling, which they already deducted from my settlements when I was with them,” he said.

Of the 100 students in his class, Mudgett was the “last man standing” at the end of his six-month contract when he turned in his truck a few months ago.

“You work so hard, and your reward is to have nothing to show for it,” he said.

Another OOIDA member had a similar experience at a different C.R. England location.

The 25-year trucking veteran decided to sign on as a solo company driver, and to run as much as he could until economic conditions improved. Then he planned to head back out on his own.

After finishing orientation, he was told no solo positions were available, only team. If he wanted to “go solo” he could lease a truck and start driving or walk away and pay his own bus fare home. He opted to lease a truck through Horizon for six months.

“Now I am in a situation I don’t like to be in,” he said. “If I give up before my lease is done, my trucking career and my credit will be ruined because it will appear that I abandoned my truck.”

He said he may have to become a “Phase II” trainer and drive team “just to survive and get more miles.”

The downside is that he will have to pay the trainee out of his weekly settlement, which hasn’t been much so far. Recently, after running more than 3,000 miles, he received a settlement sheet showing he made less than $1 after all of the per-mile deductions were taken out.

Perhaps the worst scenario of all
One OOIDA member, Mark Miller of Portland, OR, learned the hard way about the dangers of “creative” lease options, specifically lease-purchase programs.  

He paid off his truck nearly a year ago through Tulsa-based Arrow Trucking’s lease-purchase program, but he still isn’t able to drive his truck. That’s because he wasn’t given a clear title when he paid off the truck, and the company suddenly collapsed in December 2009.

Miller learned that Arrow Trucking had blanket financing programs on their fleet. Even though he paid off his truck, the company wouldn’t have been able to get his title out of hock until the balance on all of the trucks had been paid in full.

In November 2009, OOIDA Member Dennis Dec of Mount Airy, NC, was called in from the road for a mandatory “safety meeting” where drivers were told their company, JBS Transportation of Pilot Mountain, NC, was filing for bankruptcy.

Dec and approximately 40 other drivers had lease-purchase agreements. He had paid more than $40,000 toward his truck. His wife, Susan, said that when he tried to negotiate, the finance company said it was unaware that JBS was lease-purchasing the trucks.

In the end, all of the drivers lost their trucks.

“We are just heartbroken because we worked so hard and have nothing to show for it,” Susan Dec said.

Designed to fail
Although some drivers claim to know a few in their trucking careers who have completed the terms of their leases or lease-purchase programs, most agree the success rate is extremely low and few end up with their trucks.

David A. Cohen, an attorney for The Cullen Law Firm, has represented members of the Owner-Operator Independent Drivers Association in numerous lawsuits against motor carriers. He told Land Line that many “lease and lease-purchase programs are designed for drivers to fail.”

Cohen said that most motor carriers’ business models aren’t designed around a driver successfully taking ownership of the truck. The company makes better money by the number of drivers it signs up to lease that same truck.

National spotlight on the problems
While OOIDA has been actively fighting unfair lease or lease-purchase programs, these types of programs have also gained the attention of some key U.S. lawmakers, including U.S. Rep. Peter DeFazio, D-OR.

At a hearing in May, DeFazio, chairman of the Highways and Transit Subcommittee, called for an investigation into possible leasing problems associated with the Clean Truck programs at the Ports of Los Angeles and Long Beach.

OOIDA Director of Regulatory Affairs Joe Rajkovacz testified at the hearing on behalf of truckers who have found themselves victims of bad leases or “rent-to-own” programs.

“We have seen an explosion of drivers who have lost everything because they signed up for one of these types of programs,” he told Land Line.

“Motor carriers continue to find ways to dump all of the equipment costs and liability onto the drivers, and then they can reap all of the profits. Just look at what happened to those drivers with Arrow Trucking.” LL

 

clarissa_kell-holland@landlinemag.com

 

Contributing sources
David A. Cohen, The Cullen Law Firm; Paul D. Cullen Sr., The Cullen Law Firm; Tom Crowley, OOIDA Business Services Dept.; Jerry Bartley, OOIDA Business Services Dept.; DuWayne Marshall, OOIDA member; Joe Rajkovacz, OOIDA director of regulatory affairs; Michael Fife, corporate vice president, independent contractor division, C.R. England; Bill and Carol Pelham, OOIDA members; Bud Pierce, director of Horizon Truck Sales and Leasing; Les Oswald, Independent Contractor Curriculum Development, C.R. England.

Thanks to the countless OOIDA members who provided background information and copies of their lease-purchase agreements for this article.

March/April
Digital Edition