PUBLISHER’S CORNER The Trend of Leasing & Financing WRITTEN BY TONY CORPIN |
TONY@STNMEDIA.COM D
uring my driving life, I’ve had a few cars, some pre-owned and others new. I’ve used all three options of buying outright, financ- ing and leasing to get into those vehicles.
Recently a story posted on the Wall Street Journal website reported on a record number of auto leases in recent years, hitting a new monthly high of more than 32 percent in February 2016. It got me thinking—was this also trending in the school bus industry? If so, what’s causing it to happen? Blue Bird and its finance arm, Blue Bird Capital Ser- vices, estimates the total school bus financing and leasing market is 25 percent to 30 percent, and it’s“growing ev- ery year,” according to Ken Kaminsky, the vice president of program management of the Americas. He added that financing provides a valuable tool for customers to get their hands on a new or late-model school buses by using various lease structures to meet the unique demands of their individual, local school district’s budgets. Ka- minsky recommended leveraging the different finance options available that can satisfy the dollars available for a customer’s purchase. Typically, the most common lease is structured with a five-year term. He also told me that school buses don’t depreciate as fast as consumer automobiles, and they maintain significant values in the marketplace.
A school bus dealer I spoke with said he recently
offered a school district customer a 2.2 percent annual payment over five years for new school buses worth a total of $1.52 million. Tat equates to approximately $316,000 per year. “Money has become so inexpensive to borrow, how can you not lock in these low rates to ac- quire the latest technology and equipment all upfront?” It’s become a very manageable and predictable financial solution to provide the transportation services needed to the community the district serves. Te executive vice president at a mid-sized contrac- tor that operates more than 1,000 school buses shared that his fleet is a mix of 5 percent leased, 30 percent owned and 65 percent financed school buses. De- pending on the situation, this contractor uses different financial strategies when buying, financing or leasing.
50 School Transportation News • APRIL 2016
He mentioned that, typically, the company opts for a traditional seven-year term when financing. “Banks are now approaching us to consider 10-year terms, which are attractive at these low rates. Plus, the useful life of equipment is increasing. As a business, helping free up capital to fuel growth is important to us.” At Clark County School District in Las Vegas, the CFO makes the final purchase decisions and opts to not finance vehicles and equipment. Te school district has the financial means within the general fund plus organic district growth to support a school bus replace- ment policy. I sense that this isn’t the norm for many school districts out there that are cash strapped. Yet in 2016, Clark County anticipates buying roughly 230 new buses roughly for $32 million dollars. Tis will be the largest school bus purchase ever made in one year by the district.
When the economy tightened a few years back, the district deferred annual purchases and still opted not to finance or lease. Te district is now catching up on its re- placement, but still needs to make up ground. So why not finance or lease school buses to get to your goal faster? One business manager I spoke with said that he thinks the Federal Reserve will make further rate increases soon- er rather than later. And that’s a compelling argument to secure school buses now to avoid speculation and volatility later. He said he felt the fear of higher rates in the future might be a major driver for his district to purchase more school buses in 2016. No matter what decision you make for your company, school district or even for your own personal vehicle consider all the financial options available to you that help you meet your unique situation and needs. But don’t wait too long, as I believe it’s only a matter of when and not if, the next rate increase is announced.
Tony Corpin, Publisher
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