Making the most of captive finance

Transparency keeps Combined Transport nimble and competitive

The transportation industry has seen its fair share of change over the last several decades. From the ongoing impact of deregulation to technology advancements in trucks and increasingly stringent emissions requirements — they’ve all had an impact on the way transport companies purchase and finance their fleets.

In particular, many of these changes have contributed to a growing demand for trucks to be financed through captive finance organizations (those organizations whose primary purpose is to finance equipment manufactured by their parent organization).

This close connection between lender and OEM has the potential to create efficiencies over other lending sources — particularly when the fleet owner is willing to be transparent with their captive financing organization.

When a trucking company has an open, trusting relationship with their captive finance company, together, the two organizations can react more quickly to business needs, and ease the process of business and fleet growth. Combined Transport — an Oregon-based full-service logistics and specialized trucking company — is the perfect illustration of how a trucking company can put themselves at a competitive advantage by using captive financing.

Volvo Trucks

Growing together

Combined Transport, like many trucking companies, started out with just one truck. Since 1980, they’ve grown to a fleet of 500, servicing customers in 48 states and Canada.

Navigating the growth of four divisions — flatbed, heavy haul, glass and refrigerated — the company has evolved every bit as much as the industries it serves. Today, Michael Card is at the helm of the family business, having seen the company through multiple acquisitions, ownership buyouts and rapid growth. Through all the change there have remained several constants: the support of their dealer, TEC Equipment, and their captive finance company, Volvo Financial Services (VFS).

TEC Equipment has helped Combined Transport grow their fleet since 1994, selling the company approximately 500 Volvo trucks along the way. Roughly 90 percent of those trucks have been financed through VFS.

“Working with a captive to finance a fleet provides a huge benefit for someone who is looking to grow and build their business, simply because it doesn’t take away from an existing credit line with their bank,” says Rich Barker, regional sales manager at VFS. “As you need to make investments in the business outside of just the trucks, you have a full line of credit to do so.”

As Combined Transport expanded into the refrigerated business with the acquisition of Blackwell Consolidation, the company needed to significantly invest in infrastructure for the business, including a new facility and storage space, while also expanding the fleet. Using VFS allowed Combined Transport to expand their fleet without using up the credit necessary to build up their business.

Not only has captive finance provided opportunities for growth at Combined Transport, but it’s also provided the ability to be incredibly nimble and competitive.

According to Casey Jones, branch manager at TEC Equipment, who has worked with Combined Transport for more than 20 years, working with a captive finance organization is what allows this quick turnaround.

“Sometimes what makes the deal is being able to get a truck financed in one day. Once we get a bank line setup through VFS, all we have to do is call for documents so that we can sign the deal and have the truck ready to go same day.”

Through other lending channels, quick turnaround can be a challenge, particularly with Combined Transport’s niche units.

“The fact that VFS understands our business is what makes the difference,” Card says. “We buy specialized trucks and trailers. When I need something, there’s not a lot of questions — they just get it done. Not a lot of people haul glass. When we’re trying to finance something specifically for glass; they know what it takes and understand why it costs what it costs.”

It’s not just about understanding the trucks, however. It’s about understanding Card’s business strategy. Card’s willingness to be transparent with VFS has been a big factor in the speed and ease of doing business together.


Quick to react

Combined Transport relies on highly specialized trucks and trailers for some of their niche applications such as glass and heavy haul. Despite being niche, they still face incredibly stiff competition, and thus, must remain nimble and react quickly to customer needs.

“We decide to grow when our customers need us to grow, and sometimes they need us to do that very, very quickly,” says Card. “If a customer needs new equipment or new trailers, I need to react fast if I want to continue to do business with them.”

Transparency goes a long way

“It’s important that we stay proactive in anticipating Combined Transport’s needs, rather than simply reacting on the spot to a time-sensitive request,” says Barker. “Michael is very thorough in the information he provides us — from his own business outlook to broader market forecasts that could impact his business in the coming year – we’re able to stay ahead of the curve and anticipate exactly what he’s planning to purchase, what he’s planning to trade and what he’s planning to sell in the coming year.”

But this level of transparency also requires privacy. From Jones’s perspective, that’s another area where captive finance companies may hold an advantage.

“It’s one roster. Everybody communicates and they don’t have to go outside the business,” Jones says. “And when you share your information on a deal with a third-party vendor, sometimes they do a lot of other business with your competitors. They’ve got your truck price and a lot of the elements of the deal you have, and in my experience, you would be surprised how often that information flows to competitors.”

While captive finance is often a no-brainer for many companies with the buying power of someone like Michael Card, up until recently, it hasn’t always been an option for the smaller owner/operators that have traditionally bought used. However, that’s all changing.


Captive for all

According to the Equipment Leasing and Financing Association (ELFA) 2015 Survey of Equipment Finance Activity (conducted by Keybridge LLC), 16.8 percent of new business volume among all captive finance companies was attributed to the transportation industry.

From Jones’s perspective, much of this growth is due to the rise in demand for new trucks due to evolving emissions regulations. Located in the Medford, Oregon branch, right on the border of California where emissions regulations are among the most stringent in the country, he’s seen demand for new trucks take off in recent years.

“A lot of smaller carriers that would usually be in the used truck market are now making their way into new trucks that'll give them pretty much unlimited years of running into California. They realize if they buy a used truck, it might only be good for a year or two until they can't go into California anymore,” says Jones.

While regulations are impacting the types of vehicles being purchased, the technology on these vehicles is also impacting the level of support the buyers need from the dealer and manufacturer — one more factor that is driving more buyers toward captive finance.

“Today’s trucks are essentially rolling computers,” says Stephen Yonce, vice president of truck financial services at VFS. “They have infinitely more capabilities to be better maintained, but the learning curve may be a little more steep than older generation trucks. If a fleet owner can rely on a nationwide dealer network with certified master technicians, as well as on the manufacturer to provide remote telematics monitoring and reporting — and if you can bundle that all in under one payment structure with a captive finance organization, it’s very attractive and cost effective.”

New engine technology has also increased demand for extended engine warranties. Buyers are eager to shelter themselves from repairs for the parts in the new low-emissions vehicles.

According to Jones, it can be easier to finance an extended warranty through a captive finance company like VFS.

“It’s their ability to work hand-in-hand with the manufacturer and the dealer on joint offers — whether it be on financing an engine warranty, a support agreement, telematics, you name it,” says Jones. “We can all work together to develop creative offers that are hard, if not impossible, for a bank to match.”

According to Jones, this recent trend toward captive will not be a short-lived one.

“Looking ahead to impending EPA 17 emissions, I’d expect businesses of all sizes to continue to look toward buying new rather than used,” says Jones. “And when you’re buying new, captive is always going to be a good financing choice.”

Making the most of it

As technology and regulation continue to drive demand for new, thereby increasing the percentage of buyers who have access to captive finance, those buyers may need to rethink their level of transparency to make the most of the opportunity.

“Building a long-term, trusting relationship between the dealer, the customer and the finance organization, and having transparency at all levels, is what ultimately gives the customer a competitive advantage,” says Barker.

Combined Transport has seen the results of fostering these kinds of partnerships, but smaller companies should also follow suit. If they’re willing to be transparent, it will undoubtedly pay off.