Knowing what your tractors,trucks and trailers are worth is a critical element in successfully running any kind of fleet. For some advice on how to get the clearest picture of your fleet’s worth, Fleet Owner turned to businesses whose jobs are to create accurate equipment valuations—three that provide truck and trailer financing through leasing and one that helps its small-fleet franchisees manage their equipment investments.
Probably the most important element is creating or identifying a deep, accurate database. “In the past 10 years, we’ve sold over 26,000 used trucks, which has provided us a database that plays a key role in accurately predicting future resale values,” says Paccar Financial’s Jake Civitts. Confidence in those valuations allows Paccar Financial to create competitive fair market leases despite the generally higher initial costs of Paccar Kenworth and Peterbilt trucks.
“We capitalize on that…We can offer better monthly payments because historical resale values support putting more value on the vehicle at the end of the lease,” he says.
When it comes to value at resale, “More is still better,” Civitts says. “More horsepower, more capacity, more gauges, more driver amenities. We encourage specs that will add value to a vehicle at resale. In the case of a lease, your lowest priced truck is hardly ever your lowest payment truck, and some features that can reduce operating costs, such as single wide base tires, are not as popular in the secondary market.”
Understanding residual value is critical because buy versus lease decisions are made on that analysis, says John Flynn, president and CEO of Fleet Advantage, a finance lessor.
To get that accurate residual, a fleet needs to start at the beginning of the acquisition process, not when it comes time to dispose of the equipment. Most fleet managers understand that getting the right trade cycle is key to optimizing total cost of ownership, but all too often they overlook examining whether they paid the right initial price for the vehicle, Flynn suggests.
“Specs also have a huge impact on valuations,” he says. Typically a fleet will initially spec a truck or tractor for its applications and then try to dispose of it at the highest price it can get. But if, for example, an over-the-road fleet specs automated mechanical transmissions with an access plate for a PTO even though it doesn’t use PTOs, that truck might be worth $5,000 to $10,000 more because it would be attractive to oil field service fleets that require them, Flynn points out.
Sometimes a new lease agreement involves acquiring the fleet’s old equipment, either for lease-back or disposal. Obviously, getting the valuation right is critical. Fleet Advantage not only does a thorough inspection of each vehicle complete with pictures, but it will also download data from the engine controls so it can look beyond mileage to engine hours accumulated by idling or PTO operations.
Financing everything from golf carts to heavy trucks, GE Capital Fleet Services has fine-tuned the valuation process over the years to such an extent that other firms also outsource their own valuation and equipment remarketing to them.
DIGGING INTO DETAILS
When it comes to valuing passenger vehicles, GE follows a four-step valuation process. “One of the advantages we have is that we have a lot of internal sales information we can use, and that is where we begin,” says Paul Seger, vice president of asset remarketing. After pulling in-house sales data histories for the recent past, the company checks various third-party databases for commercial and auction sales, and then adds a good dose of in-house expertise about regional markets and time of year.
“The market finally determines value. That is the reality,” says Seger. “The challenge for my team is to decide if it’s worth holding something in the hope of getting more for the unit later on or going ahead and auctioning that unit today.”
Many of the same valuation rules apply to remarketing commercial trucks, Seger says, but there are more details to address and a lot more in-depth analysis of vehicle condition included in the valuation process.
“The commercial truck segment is growing,” he says. “We have a national heavy-duty truck manager who does the research for us. He regularly checks 12 or more venues [because] markets shift quickly. One of the things we are focusing on now is remarketing for owned fleets.
“We also have a tool called ‘Right Time to Sell’ that was developed to help fleets identify the opportune time to replace certain vehicles—before maintenance costs begin to rise, for instance,” he adds.
Like Flynn, Seger advises fleets concerned about getting accurate valuations to start early. “Really look at the value of a product line two or three years out when you are buying new equipment,” he says. “That way, you know what your depreciation schedule will be.”
Two Men and A Truck is a rapidly growing franchise business in the household goods moving market based in Lansing, MI. Its franchise holders currently operate 1,700 trucks in 240 locations, with individual fleet sizes ranging from over 50 trucks to just two or three, according to CFO Jeff Wesley.
Not only does the company provide its franchise holders with advice and guidance on buying new trucks (they purchased almost 300 last year), but it also works to help them on equipment valuations when selling their business, applying for bank loans, or disposing of older equipment.
“Trucks are a huge asset for our fleets that have to be managed carefully,” says Welsey. “We talk about truck plans [with franchisees] at monthly meetings, about planned additions and disposals. And we have truck symposiums at our annual meeting on planning, purchasing, financing and maintaining them.”
“The most sensitive valuation is when a business is being sold,” says Welsey. “That’s when they’re examined most closely for accuracy.”
Like many others, Two Men and A Truck relies on its truck suppliers and third-party databases, as well as banks for initial asset valuations. Then it adds information shared by all the franchises and looks online for other sales data. Facing differences in those valuations, Welsey says a fleet “really has to try to understand why there are variances and to work through the differences. In the end, it comes down to basic blocking and tackling, digging into the details.”
ONLINE PROS AND CONS
Like many other business processes, the Internet has had an impact on the process of valuation. “The Internet has changed the game,” says Civitts. “It has created a relatively efficient market. Customers can now shop nationally by year, make, model, etc., as well as see how their own vehicles compare in value to other like vehicles.
“There are some pitfalls, however,” he cautions. “There are regional regulatory differences, for instance, that can affect vehicle specs. The geography, topography and weather of an area can affect the condition of a vehicle [as compared to similar vehicles in another part of the country] as can its original purpose.
“For example, Michigan dump trucks, sometimes called Michigan Doubles, can really only be remarketed in Michigan because of the state’s bridge laws,” Civitts notes. “We can use pusher axles here in Washington State, but they are not legal in Texas.”
Whether accessed online or in print, price guides can be helpful as long as you understand that they offer generic information. “That may give you a guideline, but there’s no substitute for knowing the market and what people are looking for,” says Flynn.
And just collecting sale prices online isn’t enough, either, he says. “A number isn’t enough. You really have to dig into the components on that vehicle. We actually decode VIN characters to get engine, axle and other component specs.”
Online sites and tools can be useful when valuing vehicles, especially when a fleet is trying to determine valuations for more specialized or unique equipment, Seger adds. It’s important to be cautious, however, because the more unique the equipment, the fewer data points there are apt to be, he says. Too small a sample means that the data can be more easily skewed by one or a few atypical cases.