History has a way of repeating itself in every field of human endeavor and trucking is no exception. Thirty years ago when motor carriers were reeling from the double-whammy of the 1980-81 recession and trucking deregulation, many linehaul carriers would extend vehicle life by overhauling their tractors.
In some cases, those overhauls went as far as completely rebuilding a truck in-house, including everything from the engine to the cab and/or buying an OEM-built “glider kit” — a new cab/chassis/front axle combo to which is added a rebuilt engine and drivetrain components from a fleet's own “donor truck.”
Over the past two to three years, long-haul carriers have been fighting to get through the freight slump brought on by the Great Recession and the economy's sluggish recovery while at the same time seeking to avoid buying new trucks that are more expensive — thanks to EPA 2010 emissions rules — for as long as possible. Those twin concerns led many of these fleets to, if not out-and-out rebuild their trucks, drastically extend their lives beyond the 3-yr./300,000-mi. trade cycle that became a de facto standard for Class 8 linehaulers during the go-go years that ended so abruptly in 2008.
However, no instance of a fleet running its own bumper-to-bumper rebuilding shop has surfaced this time around. That is no doubt due to how much longer trucks and their components last today, given high-tech design and engineering along with advanced materials and cutting-edge manufacturing processes.
Indeed, some of the carriers now extending original tractor life are pushing them out as far as 800,000 mi., according to industry suppliers and fleet consultants. These carriers may not be rebuilding their trucks per se, but they are certainly spending much more than ever on maintenance due to the lengthening trade cycles. At least two OEMs — Freightliner and Peterbilt — are still offering glider kits for buyers who want to go that route versus buying new or used trucks. In addition, one truck maker — Navistar — formally launched an all-makes tractor rebuilding program dubbed ReStar last year.
Interviewing a group of component supplier executives, whose field sales forces are in constant contact with fleet owners, as well as two fleet consultants who are widely regarded as experts on vehicle maintenance and truck operations, it becomes crystal-clear that there is no new way to extend on-road tractor life. Or how to determine when it is high time to stop putting money into a truck and trade it out while it still has residual value.
Rather, traditional tools of successful fleet management must be wielded. Knowing each truck's operating costs and its other financial variables, chiefly depreciation and residual value, as well as understanding whether truck-market conditions such as credit availability, will determine whether a given truck should be kept longer or traded out for a newer used or a brand-new power unit.
No single keep-or-buy decision will fit every fleet. It is likely most fleets will not return to how they traded trucks before 2008 but will adjust to a “new normal” for replacement cycles.
LONGER TRADE CYCLES
This winter, industry analysts consistently forecast that both used-truck values and new-truck sales will start to rise this year in concert with an improving economy that is pushing up freight volumes. But at least one industry expert does not see that happy state of affairs bringing back the 3-yr./300,000-mi. trade cycle anytime soon.
“Fleet managers who once traded trucks after as many as four years or 500,000 mi. have now entered the world others occupied 20 years ago,” says Darry Stuart, owner of Wrentham, MA-based DWS Fleet Management Services, who offers fleets consultancy. “At some point, freight rates will climb enough to get these fleets into another [trading] cycle. But it won't be going back to four years let alone 3 yrs./300,000 mi. Perhaps we'll see 600,000-700,000 mi. cycles ahead… [that would still let fleets avoid] major engine overhauls.”
Stuart says the keep-it-or-trade-it decision must be viewed financially. “Very few fleets will wager maintenance costs versus acquisition costs. And the cost of general maintenance will not make the decision as easy as one might like to think. The exception is when you are on the cusp of having to replace the tires, drums and wheels again on a linehaul tractor. If you have to replace those and have not budgeted for it, you will be spending $2,000 to $4,500 that was not planned for. And if the fleet itself cannot generate enough quality casings [for retreading] and has to buy new tires, the cost will rise to $5,500.”
Stuart points out that on top of the sluggish economy, many fleet owners have been suffering from severe sticker shock the past few years. “The acquisition cost for a new tractor has gone through the roof versus where it was back in 2002,” he explains. “Now it costs $40,000 to $50,000 more for a new truck.” He says this monumental hike has even slowed down buying by “the big boys,” and that has helped drive up value in the secondary market for used trucks.
“Whether to extend vehicle life or not,” he adds, “should include [weighing] acquisition costs and the lower residual value for an older truck. Certainly, it previously made sense to buy new. But that was when the price and value — and the credit availability — clearly supported that decision.”
Fortunately, though, fleets now getting ready to trade out some trucks will find the used market much more appealing than it had been even a year ago. “Used values have been holding on a typical on-highway tractor, meaning those with normal miles and condition,” explains Terry William, editor of Penton Media's Truck Blue Book. “This could be in part because the inventory of late-model tractors has simply been depleted. Low miles will continue to bring a high value.”
On the other hand, he points out that “tractors older than 2006 seem to now be inching up in value as buyers are finding the ‘diamond in the rough’ with lower than typical miles — ‘typical’ being 125,000-150,000 per year — and above-average condition for the age. I will say it still is not uncommon for me to see a $15,000 range in value for a ‘like’ truck in the same model year as reported by two different dealers.”
Fleet consultant Bruce Stockton, president of Joplin-MO-based Stockton Solutions, and formerly vice president of maintenance & asset management for Con-way Truckload, advises that the “twenty or so fleet managers I network with regularly have all extended trade cycles recently. And these include fleets running from 100 to 15,000 trucks each.
“For the most part,” he contends, “any fleet — large or small — that follows industry best practices for maintenance and continues to do so, will be fine [running trucks longer] even to the point of no return. That's reached when you begin pouring money into essentially rebuilding trucks instead of investing capital in new equipment.”
As Stockton sees it, many fleets were hit with a “double-whammy when they could not get capital [due to the credit crunch] in '08 and '09 to replace trucks; at the same time, the used market was depressed and new trucks were costing much more. So they had to run [what they had] much longer.
“I am seeing fleets getting much smarter about trading,” he points out. “They are not just considering mileage. For example, they might trade a long-haul truck in team operation at 750,000 mi. but one that ran regional hauls with six different drivers at 600,000 mi.”
Stockton says the key is to “inspect everything on the truck and then make the decision on whether to trade it or put more maintenance dollars into it.” It can cost a fleet from $10,000 to $20,000 in maintenance costs to run a truck another six months to one year versus putting that money toward buying a new truck that will have lower maintenance costs, Stockton says.
If they do keep the truck going, Stockton contends most fleets will “find they can stay on the same maintenance intervals as before, even if they sell at 750,000 or 800,000 mi. When you think about it, even when there has been a glut on the used market, most of those units still ended up staying in the U.S., moving into a regional or drayage application. They stayed on our highways just as long, just not with the original fleet owner.”
Turning to the secondary market, Stockton says fleets will find it is coming back very strong right now. “The same truck that sold a year ago with 600,000 mi. on it and now has 750,000 mi. on it is bringing the same price. Fleets must redo their calculations to determine whether to spend more on maintenance or take advantage of rising values and sell on the used market.”
He notes that many fleets put a hold on buying new from as early as 2006 through at least 2010; however, many of these operations will have to start buying new this year or next. Meanwhile, used buyers are learning that the new norm is a fleet truck for sale with 600,000 to 650,000 mi. on it. But it is a tractor with a pre-2007 [EPA-compliant] engine without a DPF (diesel particulate filter).
“That means they won't have to deal with the issues that have surfaced over the high failure rate of EGR (engine gas recirculation) system valves, coolers and the DPF of '07-compliant engines,” he continues. “Fleets have reported many of these [DPF] failures have occurred just out of the 250,000-mi. warranty period — often between 250,000 and 260,000 mi. And it can cost $5,000 to buy a new DPF and install it.”
According to Stockton, the cleaning of these early DPFs is also an issue. “Once you clean one out the first time, you never get it 100% clean,” he explains. “You may get it 85% clean after the first 250,000 mi. Will the next cleaning interval need to be shorter? That's the question. And no one yet knows for how long a DPF can be cleaned nor do they know how long its ceramic honeycomb media will last.”
Stockton adds that these concerns will affect a truck's residual value. Whereas traditionally used tractors were “judged by their mileage and maintenance records, now buyers are also asking when was the last time the DPF was cleaned, how clean did it get, and how many more miles to the next cleaning… [The wrong answers] can cause a $5,000 deduct from the sale price.”
A trio of executives — each of whom directs field sales and service personnel who call directly on fleets — from three top suppliers of drivetrain and brake components (Bendix Spicer, Dana and Eaton) concur on what are the most important aspects of maintaining trucks to last through extended trade cycles and come out the other side with some residual value left.
They call for fleets to have an industry-best preventive maintenance program in place, to follow those PMs religiously, and to not be penny-wise and dollar-foolish by using what are termed “will-fit” parts instead of OE replacement parts. They also agree that the last point is crucial not only to provide greater durability but also to ensure, in many cases, that vehicle operating safety is not compromised as well.
“Whether maximizing the life of older trucks or not, we always recommend that fleets use genuine OE replacement parts,” says Gary Ganaway, director of marketing & global development for Bendix Spicer Foundation Brake LLC. “I know it may sound like a supplier ‘plug,’ but OE products are held to a much higher standard for durability and safety performance.
“A fleet that opts for an alternative to OE parts to pay less upfront will find those will-fit parts will be made of inferior materials that will negatively impact both durability and safety,” he continues. “We find this is especially so with brake shoes and chambers.”
Ganaway says the difference between OE and will-fit parts is beyond speculation when Federal Motor Vehicle Safety Standards (FMVSS) that apply to new vehicles are considered. “The FMVSS standard for brakes is very stringent and on top of that, our industry is fortified by people who take great care about safety and are very conservative about meeting that standard.
“But once a new truck is in service, the FMVSS does not apply to its replacement parts,” he points out. “Will-fit brake parts for their lower price may deliver a compromise in stopping power, product life and how well they affect the NVH (noise, vibration, harshness) felt by drivers. But our OE parts meet the same FMVSS standard.”
John Hinesley, director of central region, says ArvinMeritor “always recommends OE parts — especially for anything going into the brake system. There are many non-OE products out there, but we design ours with great specificity and allow no compromises from linings to spring kits.”
Hinesley relates that he's seeing “more fleets now using new brake drums rather than turning them — as each time a drum is turned, you take away some of its heat-dispersing ability by removing metal. These fleets tell us they are replacing the drums instead because they want to ensure they're giving drivers optimum stopping performance.”
Turning to larger components, he advises that replacing worn-out OE units with a component remanufactured by a major supplier “will give the fleet more warranty coverage and a solid feeling knowing it was reman'd back to original specs versus using one from a local rebuilder who may have looser standards. As any fleet will tell you, they can afford any repair — but not the downtime expended to do a repair prematurely.”
Several fleets have indicated to Hinesley that “business compelled them in the last few years to lengthen their trade cycles, but they all want to get back on a replacement schedule as soon as they can. However, it can be a one- to three-year process to get an entire fleet back on its original cycle. In the meantime,” he adds, “they will have to continue to closely monitor” the condition of their older trucks.
Scott Steurer, Eaton Truck Group global service manager, points out that most fleets going to much longer trade cycles have had to for the first time “get into things like a clutch change. In fact, three clutch changes may be needed if a truck is being kept to 800,000 mi. For these fleets, the clutch has now become a ‘wear item’ that they need to be aware of and attend to with their maintenance programs.
“Another example is transmissions factory-filled with synthetic lube,” he continues. “Those come with a 500,000-mi. change interval. But now these fleets have to move beyond just checking the lube to changing it when the transmission hits that mile marker.”
Steurer says with the shorter trade cycles, fleets simply did not have to address as many items with preventive maintenance. “The PM intervals don't change but more items to check have to be added,” he remarks. “It is more critical than ever to have a quality PM program and to adhere to it rigorously. And beyond that, be sure to check in with drivers on what they are noticing. Especially with older trucks, driver input is essential. They really are the front-line soldiers of maintenance.”