Used Trucks: Buying Power

June 1, 1997
Even as overall demand for used trucks rises, buyers welcome the healthy supply of value-laden vehicles now for sale.Demand for used trucks is currently outpacing supply of the most desirable units. That's good news for retail "remarketers" of previously owned trucks -- and for fleets trading out or selling off equipmentAlthough hearing the words "seller's market" is not music to a buyer's ears, this

Even as overall demand for used trucks rises, buyers welcome the healthy supply of value-laden vehicles now for sale.

Demand for used trucks is currently outpacing supply of the most desirable units. That's good news for retail "remarketers" of previously owned trucks -- and for fleets trading out or selling off equipment

Although hearing the words "seller's market" is not music to a buyer's ears, this time around there's something to cheer about. Fleets on the prowl to buy used trucks should welcome the pinging of greater value emanating from the marketplace.

The built-in quality of commercial vehicles has skyrocketed in recent years. Advances in everything from component life to vehicle efficiency add up to greater value for sellers and buyers alike.

And if those in the business are right, emerging sales-and-marketing developments will make used trucks an even better deal for many fleets.

Buyers are also finding that the exact vehicle they seek may be just a click away. Used-truck outlets can often search existing and anticipated inventories instantly via computerized "locator" systems.

A number of OEMs are striving to differentiate their used-truck presence. This entails setting up stand-alone retail stores, as Navistar has, or establishing separate remarketing subsidiaries, as Freightliner has.

The continuing rollout of used-truck "brands" indicates how serious manufacturers are about this secondary but substantial market.

Familiar remarketing tags include Ford's Blue Ribbon and Peterbilt's Red Oval. Reflecting the market itself, Mack plans to resurrect an old brand name -- AllStar Used Trucks -- to distinguish vehicles carrying a special warranty and finance package.

Apart from being tied to branding, warranty and extended-coverage programs are gaining prominence. Volvo GM, for example, claims to be the only OEM channel to boast a used-engine warranty with terms covering wear-out.

Among non-OEM remarketers, Ryder System is a major force in used trucks. The giant lessor retails the lion's share of vehicles it turns over. It sells from its leasing locations as well as through a network of dedicated centers. Like many OEMs, Ryder brands the trucks it retails.

Another leading independent outlet is Arrow Truck Sales. Retailing out of various locations around the country, the Kansas City-based firm claims to be "America's largest used-truck dealer."

Talk about competition. Thanks to computer links, "virtual" used-truck outlets are becoming a reality. Comp-U-Truck, based in Winston-Salem, N.C., says that agreements inked with two multi-location truck dealers have given it "the largest database of heavy trucks on the Internet."

No matter how high-tech it gets, scrolling through electronic inventories to find the most suitable used truck will never approach the exactitude of spec'ing a new vehicle. On the other hand, secondary buyers of trucks coming off short trade cycles stand to acquire proven technology that's as little as two-years old.

Even if the supply of some highly popular vehicle configurations lags current demand, complaints of slim pickings aren't characteristic of today's used-truck market.

Remarketers report that the used vehicle most desired is a highway tractor, particularly a single-axle unit spec'd for regionalized operations. Meanwhile, demand for diesel-powered midrange trucks maintains its historic strength. And, perhaps reflecting the impact of recent construction activity, sales of vocational trucks appear to be climbing.

Giving all truck sales a boost is the trickle-down effect of economic expansion. "The reindustrialization of North America, the development of NAFTA, and the lack of a viable transportation competitor have acted together to grow the trucking industry," says Jim Hebe, president & CEO of Freightliner Corp.

"Since deregulation in 1981," Hebe continues, "the Class 8 industry has grown dramatically. I believe by 25% since the start of the decade."

"The right truck at the right price" is the motto Lewis Nerman, president of Arrow Truck Sales, fits to the used-truck market. He says fleets can obtain "the best-quality equipment the industry has ever seen, yet at a fraction of the price of new."

Navistar International's Jim O'Dare, vp-sales & distribution, and Rob Swim, marketing manager of used trucks, point out that used-truck customers may require a single medium-duty truck or a "matched" fleet of Class 8 tractors.

According to Navistar's Swim, the used-truck business is also important for the creativity it affords on new-truck proposals. For example, he says Navistar recently agreed to take in 1,500 medium-duties of another make to close a sale of several thousand new Internationals to a major lessor.

Beyond eight The used-truck market is not just about Class 8s. Navistar's O'Dare points out that "there's so much life left in today's Class 5 through 8 vehicles because their components have been improved substantially. Now, when a truck's traded at 500,000 miles, it usually has 500,000 miles of life left in it and can be purchased for roughly half the cost of buying new."

Paul Skopas, director of truck remarketing for Volvo GM, contends there is an oversupply of used equipment available this year. "Overall demand is not keeping pace with supply," he says, "but supply will diminish as cycles change. Some fleets that went to shorter trades may decide to keep their next complement of new trucks a little longer if market conditions keep wholesale values down."

Given that scenario, Skopas expects the used market to remain "roughly as it is for the next 18 months. "However, he also feels there are values to be had right now. "There is more quality equipment on hand for retail buyers than ever," he states.

According to Bill Gordon, president of Freightliner Market Development Corp. (FMDC), used-truck pricing has stabilized in recent months. "Prices, especially for high-horsepower conventionals spec'd with significant accessories," he advises, "are firming up. But the COE market remains somewhat depressed, as does demand for Class 8 trucks with smaller-block engines."

"Scheduled replacement will continue to be factored into the bottom line," says Navistar's O'Dare. "Many fleets have built their business on a three-year trade cycle. That won't change unless we see rocketing fuel prices or runaway inflation."

Fleets that want to maximize the potential resale value of their trucks should start with their specs. "A major tip would be to keep the driver in mind," recommends Navistar's Swim.

"For example," he continues, "a private fleet that makes fuel economy a priority also gets its drivers home every night. On the other hand, owner-operators shopping for used trucks are concerned but not preoccupied with fuel costs. They need to feel they can live in as well as work in a truck before they'll buy it."

Volvo GM's Skopas says the used-truck buyer "usually wants as much horsepower as possible. Fortunately, with electronic engines, it's easy to bump up the horsepower rating later. So, an engine can be spec'd for 370 hp. to get fuel economy on the 'front side' and be boosted to 425 to enhance resale value."

Skopas says other highly prized heavy-duty specs on the secondary market include engine retarders, air-ride suspensions, air-slide fifth wheels, aluminum wheels, and higher levels of interior trim.

According to Pat Bifaro, director of product remarketing for Mack Trucks, the OEM is finding there's a good market for '91- to '95-model tractors with 400-hp. engines, air-ride suspensions, and 60- to 65-in. sleepers. "The conventional non-sleeper is always a mainstay," he says. "For over 25 years, I haven't seen a year when they were not in demand."

As for spec'ing resale value, Bifaro cautions fleets not to "buy a big truck and under-power it." He also advises bearing in mind that if too small a transmission is spec'd, it will limit how much engine horsepower can be "dialed up" later.

Bifaro says heavy-duty dump trucks are gaining ground, especially in the Southeast where construction activity continues to pick up steam. In addition, he says midrange diesel trucks equipped with tandem axles are always popular the second time around.

According to Jim Guice, general manager of vehicle sales for Ryder System, the lessor is forecasting a "good year" for remarketing its vehicles, "with substantial inventories of light- and medium-duty trucks available." By contrast, he says there's a "soft oversupply" of Class 8s now in the market.

All told, thanks to "some heavy purchasing years" from '93 to '95, Guice expects Ryder's vehicle sales to climb about 10% to record sales of 30,000 units this year.

Perhaps the used over-the-road truck most sought after is a heavy-duty tractor spec'd for distribution or regional operations that comes on the market after only a few years of original use. In this segment, single-axle non-sleepers rule.

Buyers of such vehicles often gain trucks that were exactingly spec'd and maintained by brand-name private fleets or leasing companies, yet were only operated a few hundred miles.

Along with day cabs, FMDC's Gordon expects vocational trucks will enjoy greater demand on the used market. "We expect non-sleeper trucks and specialized vehicles to play a greater role in our sales activity," he explains.

Mack's Bifaro says the amount of inventory available suggests that major dealers have effectively built up their own supplies of used trucks. This means the "dollar volume of dealer-to-dealer wholesaling of used general-purpose tractors is dropping."

Reading between the lines of the warranty terms, financing plans, and other "non-vehicle" programs proliferating among remarketers indicates that offering clean, well-maintained used trucks is no longer enough to capture value-conscious buyers.

As used-truck prices rise in step with higher resale values, second owners expect greater assurance on their purchases. "What's catching on with late-model, higher-dollar equipment," points out Volvo GM's Skopas, "is a warranty that gives the buyer greater confidence by protecting the used truck from catastrophic failure.

"This level of protection wasn't available from remarketers even four or five years ago," he continues. "Now, engine and powertrain warranties on premium used equipment are becoming commonplace -- and that's a good thing for the industry."

According to Arrow's Nerman, computerized inventory, vehicle reconditioning program, and flexible lease and finance plans "all support the sales efforts in giving buyers the best value for their dollar."

FMDC's Gordon says it's no longer enough to sell a used truck that meets a buyer's needs. "In today's competitive market," he reasons, "the used truck, like a new one, has to come bundled with service and support that helps increase the buyer's potential for success in trucking."

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