Kicking the tires

Kicking the tires

Opportunities and pitfalls of buying a used truck

For owner-operators, the truck is the business. Sure, success requires a host of skills—marketing and customer service, load management, driving—but many independent truckers are one major repair away from being company drivers again.


That’s why keeping equipment in tip-top condition is critical. But even the best maintained rig will, sooner or later, grow obsolete. (There are exceptions, of course, some of which are routinely featured in this magazine.)

So trading in a truck is a big decision. Fortunately, new trucks are getting better and better with each model year. Of course, these new and efficient trucks come at an ever higher price. And that’s where the fine art of horse trading comes in.

The key to a good deal, as always, is knowing the value of the truck you’re trading in, what sort of truck specs you’re looking for, and exactly how much of an upgrade you can afford.

Todd Havens, CEO and owner of Truck Centers of Arkansas, walks us through the basics—starting with whether or not it truly matters just how shiny your old truck is when you bring it in.

“I’ve done this for 18 years and I’ve learned a lot, but I always think it’s funny when people say they can see past the dirt. I can kind of understand that, but it’s really indicative of how well that truck has been treated,” Havens says. “If it comes in and it’s clean, and not ripped up, I always put more money in it because, in my mind-set, this person probably took care of this truck. It just puts it in a better frame.”

As for selecting that next truck, be informed. “They need to get online, read the trucking magazines to get familiar with what’s out there,” Havens says. “Obviously, you need to shop around. Miles are a huge factor in the value of a truck. That’s kind of what [dealers] go by.”

Even the tire kickers typically do their homework, shopping around online before heading to the dealer’s lot; however, it’s very difficult with used trucks to find an “apple-to-apple comparison,” Havens advises.


“You may find the same year model, but one has 700,000 mi. and one has 400,000; or on one of them, the tires are brand new and on the other they’re worn out. And to tire-up a truck now is close to three grand,” Havens says.
Ultimately, however, the economic basics of supply and demand still hold.

“The market really died in ’07, ’08, ’09, even into 2010. It’s the longest drought we’ve had and the worst one I’ve been through. We didn’t build a whole lot of new trucks in that time, so there aren’t a lot on the used-truck market,” Havens says. “But we did build a lot of 2012s and 2013s, and those are starting to come back into the secondary market.
“It’s whatever’s out there: If there are more, the value will go down. But in that time period, the price of new trucks went up substantially because of the cost of the emissions equipment.”

 

Market trends

Paying close attention to the truck market big picture isn’t really a good use of time for truckers who trade only once or twice a decade. Fortunately, there are some good resources by and for truck trading professionals that consumers can access.

 

As for the latest key points, anyone getting into the used-truck market should prepare for lower prices on heavy-duty trucks in June and July coinciding with a large influx of available trucks, explains Jessica Carr, senior industry analyst for Price Digests and EquipmentWatch.

And when evaluating the residual value of a truck, initial price will be key in making correct calculations. Consider accounting for these price drops during June and July within your calculation, she adds.

The Truck Blue Book is a valuation tool for used commercial trucks that is updated on a monthly basis. It currently collects between 15,000 and 30,000 records of raw market data each month from both the retail and wholesale markets. Data on the wholesale side comes from well-known auctioneers such as Ritchie Brothers and Taylor & Martin as well as a few others such as Purple Wave and Big Iron.

“These raw data records are used to keep an eye on the current market trends in order to create reports such as the ones seen on the EquipmentWatch website (www.EquipmentIntel.com),” Carr explains. “They are also used to value the trucks within Truck Blue Book (TruckBlueBook.com). Each month, I utilize our raw market data in statistical models that we have created for determining a fair market value.”

Specifically, Truck Blue Book has shown heavy-duty truck values going down in June. Using 431,945 raw data points, “seasonality becomes key in predicting truck prices in the upcoming months.”

“If this year follows the previous two years’ trends, June and July should bring in a large supply of both medium- and heavy- duty trucks to the used market,” Carr says.

And as orders begin to increase on new 2016 model year trucks, the number of used trucks entering the resale market will increase, thus driving prices down further, she adds.

To check on the value of a particular truck, Truck Blue Book offers valuations based on typical use and condition. The service is $20 for a single search of the database , 1995-2015.

Another resource similar to Carr’s reports is Guidelines, a commercial truck market overview put out by NADA/American Truck Dealers (www.nada.com/b2b/NADAOutlook). Guidelines tracks both wholesale and retail trends for used medium- and heavy-duty trucks, tracking averages by model year, mileage and price.

“The continually increasing supply of three- and four-year-old sleeper tractors is the main factor behind their depreciation in 2015,” Chris Visser, senior analyst and product manager, wrote in the June report. “Trucks that are five years of age perform better since essentially all 2011s are equipped with SCR emissions technology (unlike 2010 models). In addition, 2011 models sold at retail averaged less than 500,000 mi., and are at a somewhat more attainable price point than newer trucks.”

 

Truck technology

Of note for “a guy who hasn’t bought a truck in a while” is the emissions technology that’s been incorporated since 2007, Havens points out.

The diesel particulate filter needs to be cleaned every 3,000 mi. or so, and that’s an expense that can run $750 to $1,250—something that needs to be figured into any used-truck purchase. Likewise, the use of diesel exhaust fluid will be something that, while not really new for many, could take some getting used to and must be budgeted for by the trucker who’s finally trading in older equipment.

“A lot of owner-operators or small fleets that are buying only one truck are stretched pretty thin,” Havens says. “If there’s a down payment to be made, they won’t have a lot of available cash immediately after the purchase.”
More generally, “buyer beware” still holds for the used-truck market, so Havens recommends checking a vehicle’s maintenance history.

“As complicated as these trucks have gotten since ’07, most people take their equipment to a licensed shop to get anything done,” he says, and points out that, as a Freightliner dealer, he can pull up a Freightliner truck by its VIN number to get a complete background. “Most people take good care of their stuff, so it’s pretty common for them to have their records.”

Similarly, Havens tends to trust equipment turned in by big fleets. “You know where it came from, and you know the history of it—if the fleet’s reputation for maintaining trucks is good,” he says.

Additionally, at Truck Centers, a customer may request a vehicle be tested on the dynamometer, or “dyno,” to make sure a used engine is putting out the horsepower it should.

“It’s not a guarantee, but if there is an immediate issue, it’ll usually stick out when that’s run,” Havens says.
But tire-kicking is still a fundamental part of buying a used truck at his dealership, which sells 300 to 400 a year. Key to moving those trucks, Havens explains, is having his manager of used trucks also be in charge of the finance and insurance department.

"We use seven or eight reputable sources that we’ve weeded out for the customer,” he says. “And we shop those pretty hard,” meaning the competing finance sources offer the best possible deal for the customer.

Doing the financial math

Fleet Advantage CEO John Flynn has developed a formula for what he terms “a self-funding approach.” While his company serves fleet customers, the math could make sense for even a single-truck operator—and maybe buying late-model equipment, or even new, can be made to fit into the budget.

“What’s really happening now is the fuel economy on new equipment is getting so much better year after year,” Flynn says. “So when you can get out at year three or four [of ownership], new equipment pays for itself.”

The math is straightforward: An improvement in fuel economy of just one-half mpg will save between $300 and $400 per month, based on 100,000 mi. per year—and easily cover the cost differential on the late-model truck payment.
And a new truck comes with new tires and a full warranty, so maintenance costs will be reduced as well. Instead of paying 8 to 10 cents per mile to maintain a four-year-old tractor—a cost which escalates rapidly with the age the vehicle—buying or leasing new resets those costs to 1 to 2 cents.

“For me, there’s not much to debate as long as you have a strong enough balance sheet to withstand the acquisition,” Flynn says.

And that’s the catch: financing.

Indeed, the operating cost “is not the whole picture,” and the measure is typically only a small part of the decision-making process, says Darry Stewart, president and CEO of DWS Fleet Management Services.

“Every single trade cycle is a math equation,” Stuart says. “But it is truly a formula based on the ability to have funding. If the equipment is four or five years old, and the company hasn’t had a good financial year, and the residual isn’t right, and the price of the newer truck isn’t right, then there’s a good chance they’re going to keep that truck another year.”

Depreciation schedules and tax implications are key parts of the equation as well, basically pushing the operating cost down the list, Stuart explains.

And even then, “the problem with the operating cost is that most operators don’t have the detail necessary to measure it,” he says.

Stuart concedes some people may not agree with his reasoning.

“There’s no question you’ll have ‘hockey stick’ operating costs—your cost-per-mile will increase,” he says. “But if the price isn’t right or you can’t get the financing, it’s easier to justify the higher maintenance costs than to take on the burden of the price of a new truck.”

But holding on to a piece of equipment beyond its depreciation schedule can be cost-effective.
“If you don’t have depreciation and a payment, you can afford operating and maintenance costs that are higher than normal,” Stuart says. “At the end of the day, it’s the total cost of operating the truck.”

 

Shopping around

While most truck buyers, as small-business owners, know to shop for equipment suitable for their operations, many will fall into a trap of buying more truck—or a more expensive truck—than they really need or can comfortably afford.

“There is still some emotion. They’ll buy something that may not be as fuel-efficient as they really need, for example,” Havens says. “But for the most part, our buyers are pretty sophisticated. They know their business and their cost per mile, and that’s what they look at.”

Havens’ dealership has its own website for its inventory, but he will occasionally advertise in some of the truck classifieds in publications and on websites that carry dealer listings.

Of course, for more than 30 years, the American Trucker Marketplace, beginning on page 33, has been an excellent starting point for any used-equipment purchase. Additionally, a searchable database is available on the
AmericanTrucker.com website.

The online marketplace provides buyers with real-time information regarding equipment for sale, the ability to narrow those searches by a myriad of factors, and multiple tools for reaching dealers to complete the sale.

Another advantage to buying from a dealer, Havens explains, is that dealers typically have substantial purchasing power when it comes to things like tires or other parts and accessories that a used-truck buyer might want to add.

Truck Centers also sells several hundred gliders a year, and aside from one fleet customer, most go to people who are typically in an area removed from a service network and who are “comfortable working on their own stuff.”

“Basically, a lot of people don’t like the new technology,” he says.

Most importantly, customers should expect dealers to “stand behind their product,” Haven adds.

“It’s just part of it: I’ll go above and beyond what I have to do because I want to have a good reputation. That’s really all you have,” he says.

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