A CEO finds that equipment-leasing has some clear advantages.
During his first few years in business, Ron Zappe, founder and CEO of Zapp's Potato Chips, in Gramercy, La., hauled his spicy snack foods in aging secondhand trucks. At around one-third the cost of brand-new $80,000 tractors, the used trucks were certainly a thrifty way to go. Unfortunately, says Zappe, the aggravations and repair bills eventually caught up with him. "I'd get calls at 3 a.m. from drivers stuck between Birmingham and Montgomery." After investigating ways to eliminate those unwelcome calls, Zappe opted to lease two new trucks from a large leasing company.
Leasing, says Zappe, works out to be several cents per mile more expensive than operating new or used equipment that's financed with loans. But it offers several advantages. For one thing, Zappe's leases include maintenance contracts. And to simplify budgeting and bookkeeping, the payments (for everything but fuel) are fixed.
While lessors usually try to lock you in for the full term of the lease, Zappe has found that, like many things, this too is negotiable. Last year his lessor took back two tractors halfway into a five-year lease and furnished him with two brand-new units with sleeping cabs -- at the same basic price. On the new equipment, the leasing company wrote up new five-year leases, but as with the prior arrangement, Zappe has the right to return the trucks anytime after two years at no extra cost. "We don't really intend to exercise this option," he explains, "but it's a nice thing to have it if we need it."