Custom Lease with PacLease Helps Otto Trucking Grow
June 16, 2015
Alan Otto is a self-made man.
After splitting time between working summers on the family farm in North Dakota, and working winters in the Phoenix area, Otto decided the allure of Phoenix was too great to ignore. Nice weather and abundant construction jobs awaited. He pulled up stakes, and at the age of 23, took his recently purchased Peterbilt Model 359 and moved to the Sun Belt with a truck and a dream.
The year was 1984 and Otto Trucking was born. He pulled a belly dump trailer and there was more than enough business to keep him busy. He added another truck two years later – a Kenworth. And, a mere six years later, in 1992, at the age of 31, Otto had a fleet of 75 construction trucks, with another 30 owner-operators providing services.
Today, Otto Trucking is found in six states and operates 350 Class 8 trucks in aggregate hauling, and transfer dump applications through contracts with Waste Management.
Up until 2012, full-service leasing was a foreign concept to Otto, who had always worked with a bank and purchased his equipment. But after a meeting with Roger Toman, a lease account manager for Rush TruckLeasing, the local PacLease franchise in Phoenix, leasing would become a catalyst for Otto Trucking. It would allow the company to grow even faster while controlling costs -- preserving its credit line -- while having a set monthly payment without wild swings in maintenance costs that are often associated with ownership.
“We picked up two jobs and needed 20 trucks,” recalled Otto. “They were dedicated runs and required some very specialized equipment. One was for heavy-duty tractors to pull double 40-foot belly dumps for a freeway project in Phoenix. The other 10 trucks were for a waste hauling operation for a contract with Waste Management. We were in a depressed market in the Phoenix area and didn’t want to take on another round of debt. We originally started looking for used equipment so we could conserve capital, but we couldn’t find what we needed with the right specs. Ultimately, leasing with PacLease gave us the best solution – we were able to run new trucks, spec’d exactly as we wanted them, while at the same time we limited our cash outlay. We also minimized operating expenses. I don’t think there is another leasing company that could, or would do what PacLease did for us.”
According to Otto, the Peterbilt Model 365 day cab was selected for both applications. The trucks in the freeway project were spec’d with the PACCAR MX-13 engine rated at 450 hp with 1750 ft-lbs of torque. The engine was matched to an Allison automatic transmission. A Chalmers suspension was spec’d with rear ends rated at 46,000 pounds and front axles at 20,000 pounds, to handle extreme loading for off-road hauling. Once in service, the trucks often operated 20 hours a day over two shifts. All told, they moved 2 million yards of dirt in nine months.
For the trash hauling operation, the Model 365s were spec’d with the PACCAR MX-13 rated at 455 hp and matched with an Eaton automated manual transmission. The rear axles were rated at 40,000 pounds and were ordered with air ride suspensions.
“One of the benefits of leasing from PacLease is knowing what our monthly costs will be, and not having to worry about maintenance of the vehicles,” said Otto. “This way, when we bid on a contract, we’ll know what our income will be and offset that against our major expenses so we can really put together an accurate bid. We don’t want to lose money on a bid.”
Concerns about staying on top of maintenance were alleviated with PacLease. “We have our own shops for our owned vehicles, so I know how difficult it is to schedule and stay on top of maintenance,” Otto said. “PacLease really takes care of us and handles all our maintenance needs, and they know that uptime is critical to our operation – especially since we have specialized equipment. In fact, that was an area we covered quite thoroughly when we were working with them on the lease package. We have a 98 percent on-time delivery rate in our sand and gravel operation and we couldn’t waver from that. And we haven’t.”
After the initial 20 PacLease units went into service, Otto Trucking once again expanded with new contracts in multiple states. “Since we wanted to continue with a lease program with PacLease, we began working with their national accounts program to set us up in several locations outside our home territory. I can’t tell you how nice it is to have a point person with PacLease – Jim Browning, (a national account sales executive) – who knows our operation, knows our specs, and who can make adding to our fleet a seamless process. It’s huge. Over the last few years, we added 60 Peterbilt Model 567s.”
Ten of those went into Otto Trucking’s trash division in Salt Lake City through Jackson Group PacLease, and 30 went to Denver with trucks provided by Rush. Each truck averages close to 110,000 miles per year. The Peterbilt 567 day cabs were spec’d lighter than the tractors for belly dumps – yet are very much custom and job-specific. “They’re hauling transfer trailers and go into landfill tipping operations,” said Otto. “Once we’re at a landfill the tipper tilts our trailers to a 70-degree angle allowing gravity to empty our load. It’s very efficient.”
The trucks were also spec’d with fuel efficiency in mind. “Since we run so many miles, even though there is a lot of stop-and-go driving, we wanted to improve fuel economy and we did with the PacLease units,” said Otto. “In fact, we gained 8 percent over the units we have in ownership. The PACCAR MX-13 engine is making a difference as is the automated transmission and how we geared the truck. We figure we’re saving close to $5,300 per truck, per year, in fuel.”
To save Otto Trucking downtime, PacLease provides truck maintenance onsite. “Rush does a great job with their mobile service and it does save us a lot of time and it maximizes our uptime,” said Otto. “Since we also have our own maintenance people on hand to service our owned equipment, we can handle little things on our PacLease units and bill that back to PacLease. We really work well as a team to make this lease program work for both companies.”
At the end of the full-service lease, Otto has the option to return the trucks to PacLease, or pay the residual value and add them to their fleet. “This really takes the risk out of the lease and gives us options,” said Otto. “Our lease rate is based off the residual, and it’s always a guessing game as to where the used truck market will be five-to-seven years down the road. With our arrangement we can either keep the trucks if we feel that will be an advantage to our company, or we can return those trucks to PacLease.”
After three years of leasing through PacLease, Otto said he has no regrets. “It’s been a solid business decision,” he said. “I never thought the full-service leasing could be a part of my business, but it turns out it’s been a great tool for me to get into new trucks without going into debt. It’s helped fuel our growth.”
Vocational Trucking and Full-Service Leasing
Vocational trucking and full-service leasing are not normally said in the same breath.
Specialized equipment, maintenance and residual value in a vocational application are all foreign languages to most leasing companies. “But we speak the language here at PacLease,” said Rick Walden, PACCAR Leasing (PacLease) national sales director. “It really is a niche market and setting up a vocational lease program, for construction trucks as example, takes a lot of expertise. Since we offer Kenworth and Peterbilt trucks and work with the truck divisions closely, we can provide trucks specifically spec’d for most any application.”
According to the NTEA 2015 Fleet Purchasing Outlook Survey, about 15 percent of vocational trucks are leased. “The leased trucks are a mix of finance lease and full-service lease. Unlike with finance leasing, the full-service leasing company handles the maintenance, and disposal of equipment at the end of the lease. At PacLease, we’re seeing more interest in a turnkey program as companies, such as Otto Trucking, come to realize how full-service leasing can make a very positive impact to their operations.”
About PacLease and PACCAR
PACCAR Leasing Company (PacLease) is one of the fastest-growing commercial truck leasing companies in the transportation industry. PacLease has independent and company-owned full-service leasing locations throughout the United States, Canada, Mexico and Europe. PacLease provides customized full-service lease, rental and contract maintenance programs designed to meet the specific needs of customers. A combination of reliable, custom-built trucks and complete service offerings allows customers to maximize the value of their transportation resources.
PACCAR Leasing is a part of the financial services group of PACCAR Inc, a global technology leader in the design, manufacture and customer support of high-quality light-, medium- and heavy-duty trucks under the Kenworth, Peterbilt and DAF nameplates. PACCAR shares are traded on the Nasdaq Stock Market, symbol PCAR, and its homepage can be found at www.paccar.com.