Bottom Line
Trading Your Truck
Brace yourself for sticker shock
What if you were told your '97 Freightliner would bring a mere $18,000 on trade-in?

by Jason Cisper

Owner-operators who are thinking about selling their truck (but don't know what it will bring on the market) might want to heed the story of OOIDA members Douglas and Dollie Beacham.

The Beachams stopped at a Freightliner dealership in Little Rock, AR, this spring to see what their 1997 Freightliner was worth. They were planning to trade up for a new truck in the future. Dollie admits that they were a little concerned that the 900,000 miles they'd racked up would have a negative effect on the truck's overall value. "But," she says, "we didn't think it would be that bad."

It was that bad. They were told that their truck would bring a mere $18,000 on trade-in.

"I couldn't believe what I was hearing," she says.

Unfortunately, the bad news was not limited to one truck lot. A Peterbilt dealership on the East Coast also offered them roughly the same price. Eventually, they found a California Peterbilt dealer who was willing to pay them $31,000 for their truck. They took the offer. Their new 379 is due later this month.

Since 1997, the truck market has reportedly seen consistent double-digit growth. Manufacturers have been regularly producing new trucks for fleets and owner-operators alike. Last year, an estimated 240,000 new trucks were built. The problem is that, as truck owners swap for newer models, dealerships are overrun with trade-ins that are only a few years old. The resulting overabundance of trucks has driven values down to an obscenely low level.

Irv Gulick, president of the Western Star dealer conference, says owner-operators (like the Beachams) who are planning to trade up may be in for a rude awakening when they find out just how much their truck is actually worth.

"It's a hell of a thing to hit a trucker with when his hopes and dreams have been to trade in the old truck and invest in a new one," he says. "It's sickening when it's time to trade and you find out your truck's value is not what you think."

Robert Hoover, president of Hoover Truck Centers (a Western Star dealership) in Bordentown, NJ, adds that the problem can be worse, depending on what make of truck you own.

"Unfortunately, if you're not in a Peterbilt, Kenworth or Western Star, you're in trouble," he points out. "They're the only trucks that seem to be holding their value. Nobody wants to take a Volvo or a Freightliner on trade because there are so many of them out there."

Other dealers note that the abundance of used trucks will hurt some OTR truck makers.

"You can't sell roughly 230,000 new trucks every year and not have a glut," says Steve Musfeldt, president of Mack Trucks of Kansas City. He says that because Mack is not typically an over-the-road truck, their line hasn't been tremendously impacted by market saturation. But he says that the laws of supply and demand will ultimately fix the situation. "The problem should work out with time," he says.

For those who are heavy into the OTR market, what's happening with dealers is ugly too, Gulick adds. From a dealer's point of view, he says the value of a used truck is so unstable, taking a trade today may burn the dealer a month from now. While one-truck owners are despairing over the value of one truck, the dealer is staring at a full lot. Dealers call it "floor plan interest."

"Somebody has got money in that truck, Gulick says. "And when dealers are looking at half a million dollars of their own money sitting on their lot, depressing isn't the word for it."

"We are losing two out of four deals," he says. "It's like when interest went up to 19-20 percent in 1979-80. It's the same scenario, but for a different reason. We don't know where it's going. We don't know if we've hit bottom yet."

A Kenworth dealership general manager who asked to remain anonymous says that their dealership has seen 10- to 20-percent drops in profit as a result of the full market. "Because the values go down, the equity goes down," he states. "When the equity goes down, it makes it harder to trade. The problem could be solved if there were fewer used trucks, but that's virtually impossible. There's more trucks than there are buyers right now."

The owner-operator planning to trade in his/her truck in the near future stands a good chance of sticker shock, particularly if he/she is uninformed when it comes to current market values.

Gulick offers some advice to those truckers who are in such a situation. He points out that truck owners who are thinking about trading should wade in carefully. He suggests they take stock of how they got into their current situation. Did they make a good deal? Have they built up equity, or are they upside down? And if it's not a good deal to trade it in now, it means the owners are likely going to have to stay in that truck for a while longer than they'd anticipated.

"If you are thinking about trading, check the payoff and know where you are," says Gulick, "go around and get ideas from different dealers on the trade-in value of your truck. The first dealer you go to, you may get a shock. You are going to say 'hey, they are out to shaft me.' Especially when they tell you your truck is only worth $25,000 when you think it's much more. By the time you talk to three or four dealers, you get the big picture. They're telling you the truth. And yes, it's ugly."

Hoover notes that most truck owners know whether or not they owe more on their truck than what it is worth. Many, however, think the dealers are taking them for a ride. "There are just so many trucks out there right now," he says. "That's the problem. They shouldn't get upset with the dealer."

Prospective traders have a few options available. You can take a hit on trade-in (which, business-wise, could prove to be a fatal error). You can sell your truck outright. You can compensate for lost equity by buying used (Gulick points out that someone wishing to start a fleet could cash in on the overabundance of Freightliners). Or, you can stay with your current truck until the market stabilizes. Musfeldt offers the following piece of advice:

"If your truck is older- say '90 or '91- trade it in for a '96, '97, or '98," he says. "Don't buy a brand new one. And if you own a '97 or a '98, sit on it for a while." n

Do you know what your truck is worth?

Since January 2000, the overall value of used trucks has dropped moderately. Listed below are the retail values of several truck models taken from the May/June, 2000 edition of N.A.D.A.'s appraisal guide, as well as the January/February guide (in parentheses). Also listed is an average Internet market survey figure, based on a cross-section of nationwide dealership prices.

The values are based upon a 1996 model with 425,000 miles, a 450-hp engine, and a 13-speed transmission.

Please note that the market survey value is simply a typical dealer's asking price. It is not necessarily the average sale price of these vehicles. A trade-in would likely bring less than the market survey amount:

Make/Model NADA Retail Market Survey
Freightliner Classic XL $51,025 ($55,425) $44,861 ($47,643)
Kenworth W900L $57,750 ($59,275) $56,775 ($56,995)
Peterbilt 379L $58,350 ($60,750) $57,150 ($55,600)
Volvo WIA64TTES $49,900 ($54,900) $41,698 ($44,440)
Western Star 4964 EX $57,175 ($55,675) $54,146 ($59,950)
International 9400 $43,925 ($48,300) $43,541 ($46,000)