Just "walk-away"?

You know the saying - there's no such thing as a free lunch. And that is true for everything.

Manufacturers are offering "walk-away" fire truck leases that give you a chance to just hand the keys back if you don't like it.

If you'd like to know why and how the manufacturer offers this option, here's some behind the scenes information:

-The manufacturer has figured the payments out so that your truck will always be worth more than the balance. You'll figure out you're losing money when you try to "walk-away" and keep the truck. Or the manufacturer will try to talk you into buying a new fire truck.
-The required condition of the truck is stringent when exercising your "walk-away" option. You'll be liable for large penalties and costs if you don't meet each and every requirement as you "walk-away".
-The interest rate is higher to pay the manufacturer for the risk if you do actually "walk-away".
-While offered as tax-exempt rates, this type of municipal leasing has not been approved by the IRS and the courts. If your lease agreement is voided as a tax-exempt lease, you may be subject to higher taxable interest rates and IRS penalties.
Are "walk-away" fire truck leases bad?

No, not necessarily. I know the preceding paragraph sounded that way. But the cautions listed above are provided to balance the "simple, easy, and no-risk" marketing of this complex financial offering. It's not as simple, easy and no-risk as your sales person would tell you.

You should take steps to protect yourself if you are considering this type of financing for your new fire truck.

What should I know?

First, know that you are entering into a very complex financial agreement. I can guarantee you the manufacturer will enforce every term of the agreement to protect itself from losing money on these used trucks.

It pays to read and understand the agreements upfront. If you're unclear about some term or condition, have the manufacturer provide a clarification in writing so you understand and can document what they are committing to. Don't rely on verbal assurances or promises. They will haunt you if things go wrong.

Second, know exactly why you might "walk-away".

Are you unsure of the manufacturer's truck quality? If so, a "walk-away" lease does not provide a satisfaction guaranteed type of sale. It will not let you stick the lemon of a truck back onto that manufacturer. Don't select a "walk-away" lease just because you're not sure of the price/value/quality of the truck the manufacturer is building for you. If the quality is bad, the manufacturer will not bend over backwards because you want to walk-away. They will bend over backward only if they have the reputation of giving great service. The "walk-away" lease will not make them treat you better. In fact, most cases that I have seen have been contentious and angry.

The "walk-away" lease is a financial agreement, not a customer service agreement.

Who should consider a "walk-away" lease?

A "walk-away" lease is good for those departments that know they might not need the fire truck in 5 or 7 years. And they want to easily (at least, as easily as they possibly can), give the truck back to someone to take it off their hands.

But let's think about this.... How many departments want to get rid of their 5 or 7 year old trucks? A few, maybe more, but not many that I have talked with.

Even if you want to eliminate these trucks from your fleet, remember that the manufacturer has structured the payments so that the value (if you maintained the truck according to the requirements) is higher than your balance. In this case, you are losing your equity in your fire truck. You could gain more money by selling the truck and just paying off the lease balance.

Or, you'll be liable for penalties, repairs, and fees to bring the truck up to the required condition. In this case, you're paying money for the manufacturer to take the truck off your hands. The truck may be valuable enough as-is to sell and pay off the lease balance.

Summary

A "walk-away" lease is a complex financial agreement. It is not a customer service agreement. Make sure you know all the ins and outs of the agreement before you sign. Get explanations of unclear requirements in writing to protect yourself. Do your homework and ask yourself the real reason you are considering a "walk-away" lease.

Stay safe! John Hill, Apparatus Budgeting Consultant
Envizion Financial
Toll-free (877) 368-4946

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