Prior to the onset of COVID-19, the used truck market was pretty dismal. Over supply lead to low values for assets coming into the market. Truck makers have temporarily shuttered their production facilities, which in theory should help with the demand for used vehicles.
However, the reality is that once this temporary potential surge in consumer demand abates, many fleets will be preparing for the predicted economic downturn and trucking may slow down with a gradual return to “the New Normal.” Some smaller or less capitalized fleets may not survive. This could further exacerbate the used truck market price depression.
With this forecasted downturn comes the freezing of capital for purchases such as new tractors or trailers. This could encourage companies to extend the life of their current vehicles and forego new equipment opportunities until finances and business have settled down. So, if you feel comfortable that you have the right size fleet and the right configuration, you may be able to get just a bit more mileage and time out of these assets to weather the storm.
If not, now would be a great time to do a complete analysis of your fleet — a right sizing if you will.
You need to look at each asset in your fleet and determine its utilization rate. How much of the time are you actually using the asset vs. how often is it sitting idle? Not only do you need to complete an asset-by-asset analysis, you also need to look at your fleet as a whole. Do you have the right mix of vehicles for your current customer mix? Remember, in addition to the asset, there are the licensing and insurance considerations as well.
The next step is to look at efficiencies, particularly your routing schedules.
Can you make changes to routes or delivery schedules to get better use from your existing assets? As a regular reminder to our staff and clients, this should be done several times a year to see what has changed in the delivery requirements that could be factored into your routing decisions thereby providing efficiencies. Have the delivery windows changed? Can they be expanded? This is a very good time to do just that.
Once you have completed the analysis and have a good understanding of your overall efficiency, you then need to perform a health check on each asset to determine if you can continue to run them, and if you can, thereby possibly deferring the next order cycle altogether or at least being able to order less units than originally planned. Make sure you have a full understanding of asset health and decide if the cost of extending the planned operating life will allow you to put off new vehicle purchases and thereby avoid having to try to dispose of assets in the used truck market.
If you do need to sell assets on the secondary market, assess the cost to put them in the same operating condition you would want them in if you were the buyer, and make sure you have all maintenance related information on each asset. The condition of a truck, as well as proof of ongoing maintenance are two factors that will make one asset more attractive and sell faster compared to others. You will still likely take a financial hit, but it might be a little less painful.
