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Pre-owned Class 6 and 8 trucks: Is now a good time to buy?

It is essential to have an appropriate and effective strategy for equipment acquisition, financing with the flexibility to meet changing market conditions.

"There has been a long-standing philosophy in the trucking industry that purchasing large numbers of trucks and driving them 10 or more years is an effective way to squeeze every cent out of the truck’s usage,” said Brian Holland, president and CFO of Fleet Advantage. “What many fail to realize is that when fleets drive their trucks as long as possible, they run to the point of functional obsolescence. Over time, costs begin to increase for each aging truck against their fleet, and these costs appear to be masked by the avoidance of the cost of investment to replace each unit, which ends up significantly eroding an organization’s bottom line.”

Through data, fleets are now paying closer attention to a truck’s tipping point, at which it costs more to operate it than it does to replace it with a newer model. Elements such as the cost of fuel, utilization, finance costs, maintenance, and repair are all factored into arriving at each truck’s unique tipping point, giving fleet operations personnel and finance departments better insights based on data and analytics into determining and calculating the best time to replace an aging truck.  

For example, fleet operators can realize a first-year, per-truck savings of $16,928 when upgrading from a 2015 sleeper model-year truck to a 2020 model. For a fleet of 100 trucks, when upgrading to a 2020 model year, the savings can reach $1.7 million. These cost savings are only achieved when adopting a shorter asset life cycle, which is typically seen through leasing.

It is essential for fleets to have an appropriate and effective strategy for equipment acquisition, financing with the flexibility to meet changing market conditions, and the ability to dispose of equipment in a timely and efficient manner to capture the highest resale values. This can be accomplished by partnering with a third party to help develop and execute these strategies and allow fleet managers to avoid being in the used-equipment business, often getting low resale values and high disposal fees at auction.

At the beginning of 2019, Class 8 truck auction data for the coming year indicated fairly high-volume sales of used Class 8 trucks. However, by April there were signs of slowing in the volume of trucks sold, which was notably down from March, while pricing was up by an equally notable amount.

In April, sales data showed average depreciation for the year down below 1% per month. According to Chris Visser, senior analyst and product manager of commercial vehicles at J.D. Power,  “in June, the J.D. Power Valuation Services data revealed that May’s Class 8 market prices were down and volume up in the auction channel.”

Used-truck shifts

Auction volume pulled back in June, and pricing was notably lower.

“After more than two years of expansion,” said Kenny Vieth, president and senior analyst of ACT Research, “it appears the nation may have finally reached and then exceeded the total number of trucks needed to move freight. As is typical in this type of environment, only the lowest-mileage trucks are currently bringing strong money.”

ACT Research data also indicates that the used-truck market is undergoing a shift. In the past few months, Class 8 values have decreased due to increased supply and a moderating economy. The market today is very different from the market this time last year. If you’re trading in an aerodynamic sleeper tractor, your truck most likely isn’t worth what it was earlier in the year. On the bright side, neither is the newer truck you’re looking at.

Trucker profitability may be at risk in 2019. Vieth noted a variety of factors, including slower freight growth and easing of drivers’ supply constraints, the resumption of the long-run free productivity trend, and strong Class 8 tractor fleet growth, which will increasingly pressure rates and by extension trucker profitability later this year.

Procurement strategies can be more efficient through leveraging business intelligence, data analytics, and comprehensive fleet studies that produce a fleet modernization and utilization plan, projecting when aging equipment needs to be replaced regardless of truck orders in peak or falling demand. By doing so, each truck represents its own profit center, enabling the fleet manager to accurately project the optimum time to replace it with a newer, more efficient unit that will ultimately offer significant total cost of ownership savings for the fleet.

The used market plays a significant role in a fleet’s decision, and this certainly takes into account availability, price, and remarketing strategies. In fact, equipment resale is one of the most critical components, particularly as fleets must recover the highest possible value of the asset at the time of disposal or lease expiration.

Typically, a 5% gain in used equipment significantly reduces finance costs throughout the life cycle of the vehicle. What’s more, leasing helps to eliminate residual risk while also providing for higher residual values at the end of the lease term.

“These benefits don’t end when the fleet disposes of the vehicle. The buyer on the secondary market also benefits by acquiring used but young and well-maintained equipment with a more efficient engine than what’s typically available on the secondary market,” Fleet Advantage’s Holland noted. “This bigger picture effect has an exponentially positive impact not only on the costs associated with the secondary market buyers, who also benefit from lower fuel and maintenance costs, but also the overall environment, which realizes lower emissions.”

Buying tips

Given the current climate, how can buyers be assured they are getting the best vehicle spec’d right for their applications/jobs?

“In terms of vehicle condition, a truck that has been inspected, meets industry-accepted trade terms, and has a warranty is a good bet,” said Visser. “Trucks previously owned or leased by large fleets are generally well maintained. In terms of specs, a buyer can work with a knowledgeable salesperson to make sure he or she is getting the right truck for his or her needs.

“Be prepared to describe your usual route and cargo, and think about any challenges you run into with your current rig,” he continued. “If the salesperson you’re working with can’t or won’t offer advice about the specs you might need, find one who will. A newer truck could reduce your equipment-related headaches by more closely matching your needs.”

In addition, buyers need to determine if they are working with a reputable seller. An established dealership with a seasoned staff is usually a good bet. An Internet search of reviews of or comments about a dealership can be helpful. And, of course, word of mouth is very useful.

“It’s a good idea to get up to speed on the content and spec changes trucks have seen in recent years,” Visser added. “If you’re going from an older, pre-SCR truck to a newer one, get used to the idea of having to replace DEF in addition to other regular maintenance. A new truck may also have lane-departure warnings, automatic braking, and other technology that could take some getting used to.”

For potential buyers, falling prices may be an incentive to add or replace trucks. ACT Research reported that the average price of total used Class 8 trucks in May was virtually flat, dropping just 1% month-over-month. Longer-term, prices were up 10% year-to-date and 6% higher compared to May of 2018, according to the latest release of the “State of the Industry: U.S. Classes 3-8 Used Trucks,” published by ACT Research. The report also indicated used Class 8 same dealer sales volumes fell 8% m/m, 22% y/y, and 17% year-to-date compared to the first five months of 2018. On a month-over-month basis, average mileage dropped 1%, while the average age was up 5%.

“As predicted, used-truck pricing remained strong in the first half of the year,” Visser said.

For those buyers who are ready to purchase a pre-owned Class 8 truck, Visser said, “buyers need to be assured they are getting the best vehicle spec’d right for their applications/jobs.”

New vs. Used

Kevin Koester, commercial truck brand manager at Ford Motor Co., explained that “there is not a huge difference in criteria when shopping for a used work truck versus a new truck. You are still focused on capability. The core purpose of the truck is unchanged. You start with questions like: Do you need a dump truck, a tank truck, or a flatbed? What gross vehicle weight do you need? Will it be driven by a driver with or without a CDL? What gross combination weight rating do you need?

“When ordering a new truck, you can be very specific about the options you want on the vehicle, right down to the color, seats, and tires,” he continued. “You can specify the truck to meet your exact needs. With a used truck, you may choose a vehicle that meets your main capability needs even if it has options that you don’t want.”

Another important consideration when buying a used truck is the upfit. Are you going to be able to locate a truck that already has the equipment you need, or can you afford to buy a chassis and mount a new or used body that meets your requirements? The more general the application, like a box truck or a platform truck, the more ready supply of used vehicles will be available. The supply of used vehicles decreases as your vocational upfit gets more specific, such as concrete pumpers, oil field service, or airport tankers.

In the case of specific applications, there may be a handful of manufacturers that refurbish used vehicles. In these instances, the manufacturers sometimes offer a limited warranty that provides the buyer with some peace of mind and takes some of the perceived risks out of buying a used truck.  

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