Lift Truck Tips: Fleet finance harnesses the currency of collaboration

Fleet managers, equipment manufacturers and service providers are talking a lot lately about total cost of ownership (TCO). The concept aims to unite upfront equipment costs, maintenance expenses and operation over the life of the life of the equipment. Seeing an accurate picture of TCO is essential to identifying and realizing efficiency, but it also requires increased cooperation between finance and operations functions.

In the past, if a plant manager said he liked a certain manufacturer, the sourcing manager would go with it as long as it fit in the budget. But now, many decision-makers are more budget-conscious, more competitive and more functions are now involved in those choices.

“We are seeing a lot more collaboration between the CEO, finance, controllers, operations managers, sourcing managers and the COO, all of which sit around a table with us,” says Brian Lowe, general manager of equipment finance for Summit Funding Group. “People want to talk about the total cost of ownership, which then filters into the budget process.”

Unifying these interests is especially important at the time of the purchasing decision. Lowe says fair market value lift truck leases are prevalent and generally range between 24- and 60-month terms. “The customer wants to focus on core competencies,” he says. “They want to use equipment, return it, buy it or continue to lease it on a month-to-month basis. This is a popular for those who need materials handling equipment because it allows flexibility.”

With detailed application specs and projections, it’s no trouble to design a 43-month or other custom-term lease, Lowe says. When setting up the agreement, it’s fairly straightforward to calculate original equipment cost, interest rate and residual to produce a monthly payment.

“When things could go awry is when the terms are based on an incomplete picture of the application and how often the truck is actually used,” Lowe says. “If the customer says he will use 1,000 hours per year, the residual is then set accordingly. If he gets busy and uses it for 4,000 hours per year, the truck won’t be worth as much at end.”

These situations have led end-users to pursue opportunities to keep costs consistent, including options for pass-through billing that combine the monthly lease and maintenance payments. But even if they are thinking about total cost of ownership, fleet managers rarely have a full understanding of their responsibilities.

“End-users should spend time learning the terms and conditions of how the transaction will be structured,” he says. “The master lease agreement should not just be read by a lawyer. All stakeholders should read it so the expectations are known.”