Industry figures indicate that the number of new trucks being built has been growing at a steady pace over the past several years. Since 1997, analysts say truck production has consistently showed double-digit growth.
Manufacturers are predicting that truck production for 2000 will not top 1999's numbers (240,000-plus). The market is showing signs of a glut. However, the vast majority remain optimistic that overall truck sales for this year will remain high.
According to Nila Dowell of OOIDA's truck finance program, large carriers have begun to replace their trucks every two or three years, whereas these companies were previously holding on to their trucks for five or more years. And these carriers are selling relatively new trucks at low prices.
The result is a used truck market with relatively new, low-mileage trucks.
The current used truck market is thus becoming a more attractive alternative to buying new. And December of 1999 brought the lowest month of overall new truck sales in three years.
A buyer's paradise?
Some manufacturers have begun to prepare for a drop in demand. Navistar International Corp. recently announced that they would be cutting production. Volvo North America laid off workers in December. And Freightliner has begun to reduce the amount of overtime being offered to employees. Other major manufacturers say they are closely monitoring the new and used truck markets.
Jim Hebe, Freightliner president and CEO, helped ring in the New Year with a warning to the trucking industry. At a Jan. 25 press conference held at Freightliner's headquarters, he pointed out that of the more than two million big trucks in the U.S., roughly half have been manufactured within the past five years.
As a result, three-year-old trucks are regularly bringing less than 50 percent of their original prices when they're resold. According to Todd Spencer, vice president of OOIDA, some fleets are being offered "ridiculously low" amounts by truck manufacturers trading in used trucks.
He mentions, as an example, a New Mexico based fleet owner that Freightliner recently offered $28,000 a piece to buy back six 1996 model trucks with condo sleepers.
"That is an indication of just how many trucks are out there on the market," he says. "The fleets are actually being lowballed when they try to sell back their used trucks."
Hebe also noted that the shortage in drivers has affected the market, as many fleets have idle trucks due to a lack of drivers. These fleets have ordered new trucks but haven't picked them up, as they have no one to drive them, he said.
Some carriers, sensing an overabundant market, are looking to evade potentially large losses by passing financial responsibility to would-be owner-operators. John Smith, president of CRST International, recently noted in a management outlook forum, that his company would use a lease purchase program to avoid some of the losses incurred when replacing used trucks with new ones.
"We're going to offer (used fleet trucks) to our company drivers and convert some drivers to owner-operators, because we couldn't afford to take that hit on the balance sheet," he said.
Truckers who find that they owe more on their used truck than it is worth will not likely be as successful in regaining equity as someone who bought a new truck. Whereas a new truck owner can wait a year or two for the value of their truck to balance out with market values, a used truck owner will find it much more difficult to regain sound financial standing in their truck (regardless of how long they hang on to it).
A buyers market
While the overabundance of trucks may be a hindrance to anyone who is thinking about selling their used truck, those wishing to buy a truck have the market on their side. With trucks selling well below retail values, an individual wanting to become an owner-operator should be able to find a newer model truck at an excellent price. That is, if he/she is willing to ask for it.
Despite the fact that the market is overwhelmed with used trucks, dealerships bent on scraping every dollar from the consumer will continue to advertise sticker prices at or near book values. To shop for a truck without first doing price comparisons on the side is a recipe for disaster. It's very possible to get burned. If a buyer rushes into a used truck without doing his/her homework, warns Dowell, they may wind up owing more on a truck than it is worth.
"Shop around," she says. "Don't just jump at something shiny."
Specifically, she suggests "booking" the equipment you're considering. Knowing what the truck is worth ahead of time can prevent a buyer from paying too much for a used truck. N.A.D.A.'s Official Commercial Truck Guide and Kelley Blue Book are the most popular appraisal guides, and give a wholesale, retail, and loan value amount. Although these values are not necessarily reflective of what they're bringing on the market, they do provide a starting point. And although the dealer is asking for a price near book value, the market is likely to dictate the amount upon which the sales department will agree.
Secondly, Dowell says, shop for something with a warranty. With fleets trading in late models for something newer, many trucks still have coverage available. Even a truck with 400,000 miles may still have some type of factory-offered extended warranty. After market providers may likewise offer some type of protection against factory defects.
Lastly, you might want to establish an "emergency" fund for repairs. A used truck is susceptible to unseen wear and tear. If you're buying from an individual, you can check maintenance records/receipts, but in the end, it's better to be safe than sorry.
Let the seller beware
Although the market is bloated with trucks (both new and used), an owner-operator can still take steps to get the most for their used rig. A little damage control can go a long way.
When purchasing a truck, it is important to know what the truck is worth. Extras like a bigger engine or transmission, or a larger sleeper will help to retain some resale value. And if the owner is putting a large number of miles on the truck (more than 125,000 annually), he/she should be prepared for a healthy depreciation.
Additionally, if an owner-operator has the chance (provided time is not a major factor) he/she will benefit by selling the truck to an individual, rather than to a dealer. "The dealers will always wholesale the truck and undercut the values," Dowell says. "It may take more time (to sell your truck outright), but you will get more money."
The future of truck production
Some industry analysts are predicting that the market should stay flooded with new and used trucks for the next four years, as those who buy new will likely continue to buy new. Those who'll soon be selling a truck can minimize losses by spec'ing certain extras (a larger sleeper, for example, isn't likely to be found on a used fleet truck).
During this period, truckers wanting to become owner-operators (and purchase a used truck) may have the opportunity to own a later model truck for a very reasonable price. 2000 is not expected to produce as many trucks as the previous year, but until the market stabilizes, there will still be plenty from which to choose.
Do you know what your used truck is worth?
One of the most important things a truck owner can do when selling his/her truck is keep abreast of what their investment is worth. Without this piece of information, the seller could be at the mercy of the buyer.
Appraisal guides are a good starting point. But it's also a good idea to keep an eye on what dealerships are asking for their trucks. The volatility of the market can render some book values obsolete in a short period of time.
Listed below are the retail values of several truck models that are popular among owner-operators. The figures were taken from the Jan./Feb. 2000 edition of N.A.D.A.'s appraisal guide, and are based on a 1996 model with 425,000 miles, a 450 hp engine, and a 13-speed transmission. Also listed is an average Internet market survey figure, based on a cross-section of nationwide dealership prices.
Please note that the market survey price is not necessarily the average sale price of these vehicles:
|Make/model||NADA Retail||Market Survey|
|Freightliner Classic XL||$55,425||$47,643|
|Western Star 4964 EX||$55,675||$59,950|
|Mack CL713||$54,275||(not available)|