In the last 18 months Penske Truck Leasing has increased its pursuit of long term fully maintained operating leases which in the US, represents 70 per cent of the company’s revenue.
Ever since it arrived in Australia back in 2014, the business has been building the brand largely through commercial rental as proof of concept for the kind of supreme support and service it can offer its customers.
The brand is now established with 300 plus customers at each of its locations.
More recently, Penske Truck Leasing has been approaching fleets that operate all brands of commercial vehicles and offering fully maintained operating leases on MAN and Western Star trucks as an alternative. Under the arrangement, the MAN and Western Star dealerships, where Penske Truck Leasing is often co-located, get the sale of the truck when a lease deal is brought to table.
But instead of selling it to the operator, it’s sold to Penske Truck Leasing, who in turn leases it to the operator and manages the asset for its usable life.
Maintenance is then bundled in with those leases allowing the dealership to enjoy the parts and services revenue.
It’s been a focus over the last 18 months to grow that piece of the business and with the events of 2020 still very fresh in the memory, the demand for retail products, fresh produce and general freight can surge with the latest lockdowns or border closures.
According to Adrian Beach, Penske Truck Leasing General Manager, the current goal is to get more full service lease product out on the street.
“Last year Penske Truck Leasing saw unexpected demand in the commercial rental product. Traditionally, rental utilisation softens in the second and third quarter but we didn’t see that last year,” he says. “In fact our short-term rental product line was booming — and still is. There are a lot of new reasons why a customer might need to temporarily boost their fleet size.”
Increased demand stemmed, at least initially, from panic buying in the domain of retail logistics. Anyone involved in food and groceries snapped up any rental truck Penske had to spare.
When the state borders started to close, and regulations were changing frequently and with short notice, many fleets made changes to their logistics strategies that required additional equipment.
Adrian, who arrived with Penske Truck Leasing in Australia from Ohio in 2014, observes that each new COVID development over the past year seemed to present a new opportunity to help customers with rapidly changing needs.
“All of that demand in rental was directly related to how unpredictable and uncertain things were,” he says. “There’s anxiety surrounding what’s going on with interest rates and currency. There is stress around government regulations and border crossings.”
In talking to many customers, Adrian was able to apprehend the growing concerns around economic uncertainty resulting from trends in the US economy and changes in global markets and international shipping.
These worries are being compounded by customers not knowing if they have access to capital and talent and the fluctuating demand in the products they move. By the end of the third quarter last year Adrian and his team were motivated to put together a deal to address many of these challenges — challenges that are largely atypical for the transport industry.
In response to the current climate of uncertainty, Penske Truck Leasing has launched the MAN Choice Programme.
The national campaign was conceived around two of its favourite trucks: the MAN TGS 540 L Cab and the MAN TGX 540 XLX Cab. Both trucks are versatile and have comprised the largest percentage of the rental fleet in the past six years providing it with economy of scale.
In that time Penske Truck Leasing has gathered data and knowledge on the maintenance and running costs of both models.
Using that as a starting point, they experimented with a number of different rating scenarios including combinations of vehicle price, residuals, annual kilometres, warranty packages and everything else that goes into the lease calculation to determine the very best deal to offer a customer.
That best deal ended up being a five-year term with 150,000 kilometres per annum.
The issue remained, however, that a five year term counters the anxiety regarding growth risk and economic uncertainty. Adrian needed a way around it.
So it was decided that the customer would get the benefit of the lowest payment Penske Trucking Leasing can offer but at the end of two years they would get a choice.
“Let’s say the customer loves the truck and the programme, but they lose the contract that required that truck to begin with. After two years they can simply turn it in and walk away,” Adrian says.
“They’re done. As if they’ve reached the natural conclusion of the lease. Let’s say they love the truck, but they don’t like the programme. At the two year mark they can buy it out and own it themselves. Or maybe they end up loving the truck and the programme, but their application has changed and they need more (or fewer) than 150,000 kilometres per annum. We can tear up that original lease and write a whole new one based on the repurposing of that truck and structure the financing around its new application.”
It’s this kind of flexibility sought by medium fleets and smaller independents that the MAN Choice Programme aims to offer.
Uncertain economic conditions, like those currently in effect around the world, are unlikely to change in the foreseeable future.
Many of the smaller independent operators, as a result, will find themselves at the mercy of trying to raise capital from the major financial institutions and banks who are not renown for elastic terms when it comes to loans and contracts.
“Instead of getting locked into one truck, one application for the next five years you get the benefit of the best deal that we have to offer on our favourite truck and within two years, whatever happens in the world, you’ve got some options,” Adrian says.
“Walk away and say goodbye forever, buy it and own it, or finish the balance of the five-year lease as written. Or we’ll come up with something different if you need to repurpose it or put it on another application.”
The programme had a soft launch last October and almost immediately garnered ten new orders. Because the TGS and TGX are popular models, inventory was in supply, meaning Penske Truck Leasing was able to in-service the truck under two months with minimal delays.
According to Adrian it’s been well-received and the closing rate is higher than any lease deal that they’ve ever had.
A sniper approach to the customer database in identifying the right targets according to kilometres, work volume and application has enhanced conversions.
“What we’re doing with this programme is less about the asset itself and more about providing a service of uninterrupted deliveries,” he says.
“That’s our goal. You pay us one monthly fee. You get the truck, all your maintenance, the management, and the over-the-road support. We can bundle in on-roads, substitute vehicles, or livery if you want. The programme itself is as customisable as the actual truck. We learn about the customer’s financial and operational performance requirements and design a programme to suit.”
Just as asset management is not always a core competency of smaller operators like it may be with the big fleets, Penske Truck Leasing has an advantage in terms of reducing acquisition cost due to their special OEM relationships and they can typically borrow money at lower rates than many companies. They also have a dealer network to leverage for service, support, and disposal.
“This means we can help manage their cashflow. The customer knows exactly what they will be paying every single month for the next 24 months,” Adrian says. “In the past leasing hasn’t been flexible. Now we have all different outlets to help with the assets if something changes along the way.”
Based on the early success, the company is now widening the offer into a national campaign in which the sales team and dealerships are going to research their own customers and competing brands and make approaches leveraging the strength of the flexibility inherent in this specific deal.
Adrian is also excited about the opportunity to have some of the trucks being returned two years from now.
As both the MAN TGS and MAN TGX are rental spec, if half, for example, of 20 new leases come back, they can be transitioned seamlessly into the rental fleet once the customer livery is removed and the truck has been cleaned, received some new mudguards, and had the Penske rental stripes added to it.
“If we normally buy 30 units a year for our rental fleet, and if ten come back, we’ll only have to buy 20 that year and we’ll be replacing ten trucks that are five or six years old with ten trucks that are only two years old and with relatively low kilometres,” he says. “So we’re still refreshing the hire fleet and perhaps eliminating a $2 million capital expense.”
As for the trucks themselves, Adrian regards the MAN vehicles as ideal for a rental fleet where flexibility is a priority.
“These MANs can do a lot of different freight tasks. They’re a great B-double linehaul truck and if we get a call from a customer who only needs to do single trailer grocery delivery, they can do that job too. Between the MAN TGS 540 L Cab and the MAN TGX 540 XLX cab, we’ve got nearly all traditional on-highway freight tasks covered,” he says.
“Our maintenance costs on these two models is very reasonable and predictable — just the way we like it. You bring them in for a service and there they go for another 70,000 kilometres before returning to the workshop. They’re reliable, they’re quiet and they’re smooth under foot. I love them. I fully expect to see the marketshare of MAN product take off this year.”
Under COVID, big businesses have consolidated market share like never before.
With lockdowns, trade tariffs and border restrictions adversely affecting many in commercial road transport, small businesses are finding it a challenge to compete at the same scale. For many independent road freight transporters there’s no time to wait and see what might happen.
The MAN Choice Programme offers a timely solution for medium sized freight companies who recognise business resilience will be crucial this year and moving forward.