I have spoken with several fire departments that used a trade-in or turn-in lease to purchase their apparatus. They are now at the end of their contract and they all are discovering the hidden costs behind these agreements.
First, why did they agree to these contracts?
At the time, the lure of forced fleet replacement and a seemingly lower payment was too attractive to pass up. They all thought that just making payments for 5 or 7 years while using the truck and then just giving it back would help them keep a modern fleet and eliminate the costs of ownership. However, they now are forced to deal with the hidden costs in these complex financing agreements.
What is happening now at the end of these contracts?
One department found out that they could only turn the apparatus back in if they purchased their new trucks from the same manufacturer. While somewhat dissatisfied with the manufacturer quality, the large shock came in the pricing of the new trucks. They were almost $80,000 higher per truck than the second highest price.
So, the department was forced with 3 bad choices:
- Buy inflated price trucks from the same manufacturer,
- Purchase the 7-year old used trucks at about 50% of their original price, or
- Sell them and hopefully break even by paying off the balance
Another department's nightmare
Another department was forced into the same three choices and are now paying money because they exceeded their mileage restriction. So, they are forced to pay for each new mile driven.
Summary
The trade-in or turn leases appeared to provide a great deal upfront. But departments across the country are learning now exactly how much these "great deals" are really costing them.
Stay safe!
John R. Hill
Apparatus Budgeting Consultant
ENVIZION Financial
www.envizionfire.com
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