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Hard-up hauliers can transform their trucks into cash by selling

13th December 2001
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Page 38, 13th December 2001 — Hard-up hauliers can transform their trucks into cash by selling
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Which of the following most accurately describes the problem?

them to a leasinl company and then renting the vehicles back. As Steve flame reports, the benefits of such schemes are out there, but operators should do their homework carefully before taking the plunge...

f the taxman or other creditors are chasing you, why not raise some cash by selling your trucks to a leasing company and hire them back for an agreed monthly fee? "It's a popular option at the moment, and we're getting a lot of inquiries," says Michael Nutted, contract hire director at contract hire giant Lax Transfleet. "We've done a number of pretty significant deals over the past six months," agrees Chris Sharp, operations and sales director for rental and contract hire business at Ryder, Companies like these aren't especially interested in buying trucks from hauliers and simply leasing them back. They're looking to add value to what they do—which means they can charge more—and much prefer to supply them subject to a contract hire with maintenance agreement.

As far as manufacturers are concerned, the motivation is slightly different. If they acquire a fleet with a high percentage of trucks of a make other than their own, it's with an eye to replacing them with vehicles of their own brand as they come up for renewal.

One of the most important considerations an operator has to bear in mind before he enters into such an agreement is how much cash the purchaser is willing to hand over for his trucks.

"We'd pay the market value,' says Sharp. "It's not sensible to pay over the odds for assets."

A potential problem here is that if the market price is less than the operator has got them written down at in his books, he'll show a loss. If it's more, then he'll attract a tax "Companies tend to depreciate their vehicles to zero over five years, so any risk that a loss will be shown will only arise during the early part of a truck's life," says Tim Davies, managing director of Iveco-owned Transolver Operational Services.

This of course pre-supposes that the fleet concerned owns the vehicles to begin with.

"If they're already leased or they've been acquired on contract hire, then it won't be practical for us to acquire them because penalties may be levied for

early settlement of those agreements," Sharp observes. "However, we will look at settling HP agreements."

"If a haulier runs some vehicles that he owns outright, but leases others, then it may be possible to have those leases re-assigned to the prospective purchaser," says one leasing specialist.

In addition, a lessor may not always be particularly happy about buying a firm's older vehicles.

"So far as we are concerned, the bulk of the fleet should be no more than three years old," says Sharp. "We'd suggest an operator retains ownership of older trucks, and we'll put together a maintenance package to cover them."

Even advanced old age needn't be a barrier to doing a deal, however, if It is otherwise appealing. "We were talking to a company recently with several trucks over 16 years old, and we're prepared to put a package together for them," says Transolver's Davies.

Surely if a firm sells and then leases or contract hires back its trucks, it's in danger of locking itself into the sort of inflexible, penalty-strewn deal that Sharp has just complained about?

"We build a lot of flexibility into our deals to answer this criticism, and the contract hire rates we charge corneae, well with what's available elsewhere," Sharp insists. "The customer doesn't r over the odds."

Rates are calculated taking into account the age of the vehicle and the likely cost of maintenance. This means that although a three-year-old vehicle should be cheaper to hire back than a brand new one because it will already have depreciated heavily, the price will have to take into account higher repair bills because it will have covered many more miles.

Furthermore, if it chooses to take them back on contract hire, then the operator will enjoy all the benefits associated with such an arrangement, Michael Nuttall stresses. They include greatly reduced fleet administration costs and predictable budgeting.

"It also makes it easier for an operator to replace his fleet because he's not involved in massive capital expenditure," he observes. "He's not buying depreciating assets, and he's nc taking a risk on residuals." Eariler this year lveco-owned ontract hire group Fraikin took over at ieodis United Distribution's tractive nits and rigids up to five years old from 'le then leasing agent, and all trailers up ) seven years old, in a 1.4m investment. will generate an annual revenue of 6.5m over the next three to four years.

A rather smaller operation that's one the sale and contract hire back cute with the same company Is Surreyased sandwich maker and distributor utlers Pantry. It has signed over its ntire fleet of 25 3.5-tonners to Fraikin.

"Since the company was formed we've always owned our vehicles outright, but we chose to enter into a sale and hire back agreement with Fraikin because we wanted a third party to take over responsibility for them," says Butlers Pantry sales partner, David Wilkinson. "The fleet was becoming an administrative headache as it continued to grow."

Another company that's entered into a sale and hire back agreement with Fraikin is civil engineer Crown Cutting Services of Chasetown, Staffordshire. It runs 26 trucks, and has initially signed eight of them over. "We don't want to put all dour eggs in one basket," says managing director, Roy Stretton. 'We want to see how things work out." Aside from aiding cash flow, the maintenance in the package means Stretton can budget ahead with some confidence—a key reason for signing up, he says.

Users are wise to research any agreements thoroughly before committing themselves, says Elliot Lennick, managing director of MAN Transcom.

"You need to think carefully about such a change," he observes. "It's certainly not something that you can decide on overnight."

An alternative to selling your fleet and leasing or contract hiring it back is to dispose of it to a rental company and take back daily rental vans and trucks instead, That's an idea being promoted by major commercial vehicle self-drivehire specialist Northgate under the Northgate Sale and Rentback banner. All vehicles aged 30 months or less are hired back to the customer, while older ones are sold off and replaced with new ones. The ones that have been hired back are swapped for new ones too, once they reach the 30-month mark.

The big advantage from the customer's viewpoint is that after a year he can return his entire fleet to Northgate under this agreement, and walk away without penalty. He can also swap, say, three Vauxhall Astravans for three Ford Transits if his requirements change, so there's plenty of flexibility.

Potentially there's also an accounting advantage, says Steve Coupland, the company's sale and rent back manager.

"If a vehicle is leased, then the asset and liability have to be shown in your accounts, while any liability for contract hire rentals has to be disclosed in a note to your accounts," he says. "But you don't have to show daily rental vehicles on your balance sheet."


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