To get the most value out of today's used-truck market, sellers must be savvy
Right now -and for the foreseeable future - it's a buyer's market for used trucks. And that means fleets selling off equipment need to put more oomph in their sales effort while fleets buying used can afford to root around for the best buys.
That's what the experts say. It's easy to see why they call it that way. Combine a galloping economy that's pushing new truck sales to record highs with a steady trend toward shorter trade cycles at many fleets, and presto, there's enough high-quality late-model equipment available for buyers to get choosy over.
"It's a buyer's market except for certain pieces of equipment in high demand, like construction vehicles," reports George Stanton, publisher of National Market Reports' Truck Blue Book.
"There is an oversupply of certain trucks, especially over-the-road Class 8s," he continues. "On the other hand, a conventional truck that appeals to owner-operators will still bring good money. Cabovers, however, are dead in the water."
Echoing those points is another market expert, Kyle Eggert, publisher of American Trucker, a truck-sales publication. "The used-truck market is steady. Prices have stabilized. Trucks in high demand, like late-model conventionals spec'd with owner-operators in mind, can be sold at a good profit. The opposite of that is cabovers, which are declining in price.
"We foresee no big dip in used-truck prices over at least the first six months of this year," he continues. "We track the market a quarter at a time," Eggert explains. "If the economy slows, or interest rates or fuel prices climb, it will be a different market. If that happens, the big story will be what dealer groups with lots of equipment on their lots will do. Once the snowball goes down the hill, prices will have to drop to push inventory out the door." Now or later, whether the second buyers are individuals or small-fleet operators, finding trucks that appeal to drivers will be key.
What drives used-truck buyers, according to Truck Blue Book's Stanton, depends on what drives their businesses. "There are some truck users who only buy used or only buy new. Others will buy two used trucks instead of one new." Faced with these market conditions, what's a buyer or seller to do? Certainly, buyers have it the easiest. Runaway new truck sales guarantee a glut of popular used trucks.
As long as secondary buyers are looking for the most popular types of equipment - such as over-the-road sleepers - purchased new over the last two to four years, they should be able to take their pick. And since third buyers are often vocational operations, making do with less-than-ideal specs is often acceptable to them.
Although only one U.S.-based OEM still makes COEs for the domestic market, there are plenty of these tractors on the used market at rock-bottom prices to tempt anyone so inclined.
Even though the pickings are fat, the used-truck buyer must still observe the principle of caveat emptor.Lest the buyer beware, he or she can still end up with less truck and more headaches than they bargained for.
One, two, three Even in a buyer's market, used-truck experts advise paying heed to three factors to ensure purchasing the best equipment for the price.
These are simple and straightforward: original specs, maintenance records, and warranty terms.
Start with the specs. Are they up to the job at hand? If not an exact match, can they be adjusted at reasonable cost, such as by reprogramming engine horsepower?
Maintenance records are just as important, since buying used should not be about buying someone else's problems nor paying later for neglect inflicted by the first owner.
Examining maintenance records will not only reveal how well a truck's been taken care of, but how soon major work may be needed. The cost of projected overhauls or repairs can be factored into the buying decision.
The impact of warranty on the value equation can be figured by reviewing what OEM or extended terms remain in force and by what additional coverage may be purchased from the seller, equipment suppliers, or other third parties.
Another bit of advice commonly given to used-truck buyers amounts to following the fleet. If the buyer can identify a carrier that both operates the type of equipment it seeks and maintains it well, it's often worthwhile to find out when and how they dispose of their used trucks. Armed with that information, a buyer can get on a fleet's or dealer's "first-to-call" list.
Just as used trucks are easy to find, so are sources from which to buy them. Players in this game range from franchised new truck dealers to independent retailers of used trucks. Some fleets sell off their used equipment directly and others dispose of them at auction or by switching from vehicle ownership to full-service leasing.
Along with checking specs, maintenance records, and warranty terms, Truck Blue Book's Stanton advises used-truck buyers to find out exactly where and how specific pieces of equipment were operated by the original owner.
"It can be important in the long run for buyers to develop a good working relationship with a dealer or other truck source," he notes. "By working together, the buyer can keep the seller apprised of what he's looking for, which in the end benefits both of them."
Thanks to the Internet, finding the exact used truck being sought is easier and quicker than ever. Although a nationwide hunt can be concluded with just a few mouse clicks, it's still smart to kick the tires, too. "The last thing the buyer should do," says Stanton, "is buy a used truck sight unseen."
In a buyer's market, selling used trucks is naturally a horse of an opposite color. What the buyer is looking for, the seller must be able to provide.
Fortunately for many fleets, points out American Trucker's Eggert, there's a "trend toward understanding that used trucks can be a valuable profit center. The thing is to have an inventory of trucks that sell well."
What's more, faced with a crowded marketplace, the successful sellers are those savvy enough to make their trucks stand out from the herd.
Making that happen must start back when the truck is just a gleam in the eye of the fleet manager buying it new. In other words, spec - as much as possible - for resale.
Sales Potential According to Truck Blue Book's Stanton, "sales potential is determined by original specs. The truck has to be spec'd for the job, but it can pay to add items that will make it more desirable to a subsequent owner - especially since driver recruitment is so important today."
Stanton says specs that pay off when used trucks are being evaluated include larger-displacement engines, power steering, a/c, air-ride adjustable driver's seats, "above base" interior trim packages, and even the latest "self-shifting" automated transmissions.
"Mileage counts too," says Stanton. "But the original owner certainly can't afford to park a truck to hold the miles down. But today trucks can have higher mileage than in the past and still be considered valuable. For example, 750,000 miles is no longer considered excessive - as long as oil changes were done on schedule."
He notes that's why sellers would be well advised to supply the trucks they're disposing of with detailed sets of maintenance records. They can clinch the sale and help build repeat customers for future castoffs.
According to David Stroop, director of sales for Paccar Leasing Corp. (PacLease), even in a buyer's market, certain trucks hold their residual value, especially well-spec'd "premium" conventionals.
"The return on original specs is similar to what happens when you remodel a house," says Stroop. "Certain items pay back more than others."
High paybackers He lists the following as specs that routinely enjoy a high payback at resale:
* Higher-displacement engines; 14- and 15-liter preferred
* Larger-horsepower engines; 400 hp. and up
* Greater transmission speeds; 13-, 15- and 18-speed units
* Raised-roof sleepers; 60 in. plus
* Air-ride suspensions
* Air conditioning
* Power steering
* Aluminum wheels; for weight-savings and appearance
* Engine retarders
* Air-slide 5th wheels
* Full aerodynamic packages
* "Higher end" interior trim
* Dual chrome exhaust
* Exterior sun visor
* Chrome front visor
"Along with spec'ing 'do's' for good resale value, there are some 'don'ts' to keep in mind," Stroop points out. "For example, don't spec a light-duty reefer unit instead of a heavy-duty one if that's what the next prospective owner will look for.
"When it comes to straight trucks," he continues, "don't spec them in such a way as to limit their appeal to others. A 16-ft. body on a 33,000-lb.-GVW truck doesn't offer the payload capacity many secondary buyers expect. It may be wiser for the original owner to spec a 22-footer and have it loaded only to the equivalent of what a 16-ft. body would hold."
Yet Stroop, like other experts, advises not going overboard when it comes to building in resale value. "A truck can be spec'd to be flexible in the future, " he maintains, "while still spec'ing it to do the job at hand."
Stroop also explains how fleets can use a switch to leasing to dispose of equipment. Once a decision has been made to opt out of vehicle ownership, a leasing company can make all or part of the old fleet "go away" in various combinations of quickness and cost-effectiveness.
He says a leasing company accomplishes this starting with an equipment review. "Generally, we would split the existing trucks into two groups. In the first group would be those units with remaining useful life that could be leased back to the fleet. In the second would be those in need of replacement. We would then help the fleet sell those off and replace them with new leased units."
Trucks being replaced by either leased or newly purchased vehicles can be disposed of by wholesale or retail sale.
According to Stroop, wholesale - or "all at once" - is the way to go if a quick sale is more critical than cash return. "The fleet will get less money by wholesaling, but the trucks will be gone in one fell swoop."
On the other hand, he says, retailing will "take longer but will fetch the higher price." Stroop says that trucks can be retailed off a dealership or franchised lot or can be sold directly by the fleet from one of its locations.
However, if the fleet's going to do it itself, he advises putting the trucks for sale out of service so they can be readily available for customers to see and climb into. Stroop notes that the "touch and feel" of a truck is very important to the second buyer.
And once a fleet that opts for leasing receives money from the sale of their old trucks, he adds, it can use the proceeds either to "buy down" their investment in new equipment or simply deposit it in a cash account for whatever business purpose is prudent.
Of course, knowing when to hold them and when to fold them is a crucial issue for fleets no matter how they cycle out equipment. "Trade cycles can be based on mileage points or maintenance cost levels," advises Truck Blue Book's Stanton.
"But above all, when a truck becomes unreliable or incapable of doing the job fully, it's time to move on to newer, more reliable or more productive equipment."
And funny thing, the same advice can be applied by the used-truck buyer, too.
One way out Wanting out of vehicle ownership also meant no more hassles selling used trucks for Las Vegas-based Haycock Petroleum Distributing.
The firm, founded by Clair Haycock in 1956, is the largest and fastest-growing commercial fuel and lubricant jobber in Sin City.
President John Haycock, son of the founder who now serves as chairman, says the company decided "to become its own customer" by opening a series of retail and commercial fueling outlets in 1996.
That spurred growth, as did Haycock's subsequent purchase of a mobile-lube company that tends to construction equipment at job sites.
"As our business expanded, we had a lot of money tied up in trucks," Haycock relates. "It was very evident that our capital could be better used to fuel our expansion."
Haycock considered selling the trucks operated in the jobber business outright and then hiring a common carrier to handle that segment. "But," he points out, "carriers are expensive and we didn't really want someone outside our company interfacing with our customers."
Instead of selling off the fleet, Haycock opted to switch to a full-service equipment lease featuring a buyback put together by PacLease Las Vegas.
The lessor purchased Haycock's 20 jobber trucks, reconditioned the best units, and leased them back to the fleet. Four trucks that were five or more years old were removed and replaced with four new leased Pete 379s.
"The ability to trade our trucks in for cash and still have full access to them was a great opportunity," Haycock maintains. "It also started getting us out of the transportation business, allowing us to do what we do best - market our services."