Given the uncertain economic outlook, which would be the wiser forklift truck acquisition method: outright purchase or contract rental, with or without maintenance? The answer will depend on individual circumstances but if choosing the latter there can be no uncertainty of the need to scan the terms and conditions of the contract to avoid the numerous, potential snares awaiting the unwary.
It is generally true that small companies operating 10 or less trucks tend to favour purchase though some blue chip retailers also prefer to buy where cash is abundant because it is more effective to invest their money in financing capital equipment than paying outsiders higher asset finance rates. On the other hand, cash rich, super efficient businesses needing to expand could earn a higher return on their investment in core, non-handling assets so forklift rental/lease would make better sense.
If truck operators have a highly efficient in-house maintenance department then perceived wisdom suggests that handing over servicing to outsiders would add at least 50% to their costs. But as one former md of (Lansing) Linde claimed, few in-house operations attain such high efficiency levels.
There can be no doubt that truck purchase is more flexible than typical five-year rental/lease contracts when business conditions look set to worsen because some of the trucks can be sold if downsizing is necessary – an option not possible with fixed, five-year deals. However, truck suppliers are becoming more flexible in the rental deals and so it is worth discussing with them the options to change the contract, without penalties, should changed business conditions favour that. There have been instances where one-year break clauses have been written into five-year contract deals but for obvious reasons truck suppliers generally eschew such contracts. Alternatively, hirers could go for one-year or less rental deals though the rates would be higher than on longer term deals.
About 70% of all UK truck acquisitions are now leased or rented, usually on five-year contracts with maintenance. There are many advantages from taking this route, not least the certainty of fixed costs for the contract lifetime. Excessive truck downtime is less likely and there will be no unpleasant surprises – up to a point. Unsurprisingly, this method is particularly favoured by companies short of cash, who could also raise finance on their existing trucks through sale and leaseback deals.
Unpleasant surprises, however, can arise if hirers are not diligent at the contract negotiating stage. They should have a range of questions to grill the salespersons. Bill Goodwin, sales director of Jungheinrich UK, says: “We advise customers to ask what is meant by ‘maintenance’? Does it include all repairs caused by wear and tear”? This is important because less scrupulous suppliers have been known, for example, to charge for new seats which had a minor nick in the upholstery. There could also be a contentious issue between the supplier and customer over the cost of accidents and equipment abuse. “We remind people that what is left out is often as important as what is included, and that they should never be fooled by an artificially low price. It could mean that either you are not going to get the full service or there has been some financial manipulation of the residual values,” he said
If economic conditions worsen it is also more important to deal with large, well-established and financed suppliers. When taking out financed rental/lease deals the contract is not usually with the truck supplier, who may be a small, struggling dealer. It is with the finance provider and they will expect uninterrupted payments even if the truck hirer is no longer receiving maintenance from a subsequently busted dealer.
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