by Jason Cisper
The year 2000 won't see as many new trucks produced as last year, but it's a fact that the used truck market is virtually sodden with late model used trucks looking for a second or even third owner. Industry analysts call it a state of "glut" and confidently predict the surplus will be around for the next four years.
Volvo President Marc Gustafson notes that the industry, as a whole, didn't manage its sales appropriately. Freightliner CEO Jim Hebe has said, "We sold too many new trucks last year." As large volumes of off-lease fleet units are jettisoned back into the used market, the value of these trucks free-fall. Voluntary and forced reposessions at an all time high and finance companies are at a loss for words (or comments to the press).
Sifting through theused truck market
So with trucks so cheap, is it a good time to buy one? Although the market has an overabundance of late model used trucks at affordable prices, a buyer who isn't cautious can still end up with problems. A used truck bought on impulse is a gamble. The purchased truck can have major problems that aren't covered under a warranty. And even if the problems are covered by warranty, the losses as a result of downtime aren't.
Gary Green of OOIDA's business services department points out that the high cost of fuel has single-truck and fleet owners alike stretching preventive maintenance intervals to help keep overall costs down. A late model truck, he notes, can be run hard and dumped into the market before real problems appear. And there is virtually no consumer protection for the purchase of a commercial vehicle.
"You could be trading one headache for another," he says. "Just because it's a newer truck, that doesn't mean it was well taken care of."
But buying used does offer some advantages, namely affordability. But you can still end up paying too much. Look for the really good deals. The key to making an informed purchase, Green says, is to do some research on the truck you're considering.
"Contact the person who previously owned the truck," he says. "Look at their maintenance records. Ask them if they had any major problems with the truck. If they took good care of it, it's less of a risk. If they didn't, there are plenty of trucks out there. Find another one."
Equally important is to pay attention to the loan documents. Take careful note of financing (is it a simple interest note, or rule of 78s?). Check and double-check your specs to be certain nothing has been left out. And read all warranty documents. Don't listen to dealer promises. If something is missing from the information, get them to put it in writing.
"If it isn't in writing," Green says, "it ain't gonna happen."
Finally, Green says, a buyer should never take delivery on a truck that has problems. Despite the fact that a truck may be covered under warranty, fixing mechanical defects after owning the truck costs money in downtime.
"Drive the truck before you take delivery," Green advises. " And don't take a truck that'll give you trouble. Be smart about it, and you'll save yourself a lot of headache."
Trading in your used truck
For some, nothing compares to the prospect of owning a new truck. For many independent truckers, it's good business, provided the buyer does the necessary investigation. This is the best defense against straw purchases and price inflation.
"To get the best deal around, you've got to conduct business," is Gary Green's advice. "And you need to realistically determine what your trade-in is worth. If your trade is worth $20,000 and the dealer wants to add $10,000 to that, then raises the price on the truck you're buying, beware. Most generally, someone willing to accept a trade in doesn't add money to the truck's value just because he likes you."
OOIDA members Cindy and Robert Seiter of Erlanger, KY, have had problems with this in the past. Specifically, Cindy admits that putting too much faith in their dealer through the years eventually left them upside down in their Freightliner truck. She points out that taking hit after hit on trade-ins drained their equity.
Remember, the dealer is not doing you any favors because he likes you. If he gives you a good price on your trade-in, most of the time it means a hike in the price of the new truck. And a $10,000 price hike will also mean that you'll pay $1,200 more in federal excise tax.
"Because we had dealt with (our dealer) so much, and trusted them enough that we didn't do any comparison shopping, we were paying $10,000 to $15,000 more for each truck than we should have," says Cindy Seiter. "It prevented building up any equity to speak of at trading time, resulting in higher and higher payments with every new purchase. I can only blame our own (mistakes) for this aspect of the problem, but we also got tired of having a truck worth $20,000 less at trade-in time than an identically equipped Peterbilt or Kenworth."
Expect more lease-purchase programs
Many motor carriers, feeling the sting of losses incurred when trading in fleets, will be turning to some form of a lease purchase program. By shifting the responsibility to the potential owner-operator, the carrier avoids a lower buyback rate on a truck. And for a company driver who wishes to become an owner-operator, the temptation of a lease-purchase program is, at least theoretically, an option. Green points out that, unfortunately, such programs carry many potential problems. First of all, the initial price on the truck might be $10,000-$15,000 too high or what it might have been worth six months ago. Then you face a dilemma at the end of buy-out time.
In his experience, he says, lease purchase programs have roughly a 13 percent success rate. He likens the concept to "buying a job," and notes that the association has seen very few of them actually come to completion (where the driver ultimately owns the truck).
"If my mother had a lease purchase program, I wouldn't recommend it. There are just too many pitfalls."
Some of the horror stories Gary remembers include: carriers slowing down a driver's workload in the last year of the lease to prevent him/her from making payments, and companies tacking on so many deductions that, in some instances, they were collecting roughly 90 percent of a driver's income.
While he remains pessimistic with regard to lease-purchase agreements, Green acknowledges that some drivers will still opt to sign on to a company's program. He says that the success rate may be increased if drivers follow a few simple rules.
"The first thing you've got to do is read the damned things," he says of the lease agreement and lease purchase agreement. "And if you don't understand the documents, call someone who will. Are the deductions listed out? Does the lease specify that the escrows will be returned to the driver? Who has full recourse? You have to know the answers. Have your lawyer and your accountant look at them if you want. But be sure you know what it means."
A pretty truck is one that's paid for
Green points out that problems typically arise from a "spur-of-the-moment" truck purchase. Those considering a truck purchase (new or used) might call the market a buyer's paradise. It can be, provided the buyer makes an informed decision.
"A lot of truck owners buy on impulse," he says. "That's a mistake. Don't be swayed by a really pretty truck. Will it do the job? That's the question."
The key is to do the homework, says Green, and make the decision with an eye to the future. "This is not a time for small business truckers to take risks. It doesn't matter if the truck is cheap. If it won't do the job it needs to do," says Green, "walk away."