Woody: I’ve purchased and operated used equipment for the last 20 years. Why? Because without the higher payments of a new truck purchase and higher physical damage insurance premiums, I feel I can show more profit. I am taking advantage of the accelerated depreciation of a new truck’s value in the first few years. There are, however, some rules to be followed.
Number one, I would recommend some basic mechanical knowledge or, at the very least, a good shop close to your base of operations. Number two, you must be absolutely fanatical about following a preventative maintenance schedule. Number three, don’t idle. Follow these rules and there is no reason you shouldn’t get a million miles out of any truck with little or no major repair.
Ray: With a new truck, during the first year, the only maintenance I will have is oil changes. At 10,000 miles a month, that’s one every six weeks. You can figure eight oil changes at 15,000 miles for $130 each and that’s $1,040. The second year, you do oil changes, maybe belts and run an overhead. But most everything still is covered under warranty. Third, fourth and fifth year you have maintenance costs for the internal parts of engine, transmission and differentials but they are still covered by warranty. Don’t forget, there’s a lot to be said for my peace of mind not having to worry about the maintenance problems and the downtime.
Woody: You can get a warranty on a used truck, too. Used truck warranties have become common.
Ray: I trade every five years. My truck is always under warranty and I always have a tax write-off. The truck still has some residual value although I have to admit right now resale value has gone to hell. I think we can thank the guaranteed buy back plans of the big carriers for that.
Woody: Units less than two years old are selling at half a new price in today’s market. Again, I can see no reason whatsoever to buy a new truck. In the past, the rule was, “Buy new and trade every three years or run a truck for 10 years.” I feel the rule now should be, “Buy used, run for 10 years and buy used again.”
Ray: Now that all is said and done, in today’s market I would have to consider a truck that is one or two years old. They are just too cheap to pass up and you can get a warranty with them. I don’t expect the market to stay this way though. If it changes I would say buy new, but right now, in this market, I would have to say slightly used could be a real bargain.
Woody: I realize, however, there are some high mileage operations better suited to new equipment purchase or even lease. For instance, if you’re running a team operation and log 200,000 miles or more per year you’d be better off with new equipment. Medium or large fleet operations also have other considerations. I’m speaking mainly in regard to the single or small fleet operations.
Woody: As far as tax advantages related to new truck purchases (such as depreciation schedules), I am not convinced. In the end there are capital gains to be considered if you sell outright, and I’ve always mistrusted the trade-in values quoted by dealers when you trade up to new. If it costs me less to operate in the beginning, my net will be higher even if Uncle Sam takes a percentage. Why wouldn’t I run a truck with $1,000 a month less in payments and half the physical damage insurance premium if it will do the same job, Ray?
Ray: OK, let’s talk taxes. A $100,000 truck depreciated over five years can be a $20,000 write-off per year. What that means to me is Uncle Sam will make four of my truck payments. If you are in the 30 percent tax bracket you will deduct $20,000 off your gross. And 30 percent of $20,000 is $6,000 less tax you will pay. If your truck payment is $1,500 a month, that’s four truck payments you would have given to Uncle Sam. I gave enough to Uncle Sam when I served in his Army and I try to give him as little as possible now.
Woody: The only other consideration between new and used in my opinion would be fuel economy. Almost any recent model truck on today’s market is probably electronically fueled. I haven’t seen any great improvements in fuel savings in the last several years. My 1989 Kenworth, with a 400 Big Cam IV Cummins, gets the same or better fuel mileage, 5.7 mpg, as the newer trucks in the same fleet. I also like the idea of a rod from my foot to the pump. This I can understand and fix and I’ve had no problem in the last 920,000 miles. Incidentally, I have never had a head off this engine and have done rods and mains only twice.
I guess I could say, “A brand new ride would be nice. But, if it wouldn’t be as profitable, why would I need it?”
Ray: Woody, you’re having a hard time moving into the 21st century. For instance, computers really are helpful, they are not our enemies. Computers in trucks really work. They simplify maintenance. Today’s trucks actually tell you what is wrong with them. You might not like the idea that the computer has control of your engine and can shut it down if something is wrong, but it can save your engine and a possible big repair bill. If an engine loses oil pressure or overheats, the computer can catch this before you do. As far as that rod between your foot and the pump that you can understand and fix, you just have to get into the 21st century and learn how to maintain these new systems.
Woody: I realize technology is unavoidable. A mechanical engine will probably not even be available in the near future. On the other hand, I can in-frame my old Cummins and I know it will last me the few years left until Social Security.
Ray: An old truck is lucky to get five miles to a gallon. A new one, if you spec it right, should get from six to seven and a half mpg. When fuel is high like it is, that’s a lot of money. If you drive 10,000 miles a month at 5 mpg, you are using 2,000 gallons of fuel. If you get 6 mph that’s 1,666 gallons a month. You’re saving 334 gallons of fuel a month at $1.50 per gallon. That’s $500 a month or $6,000 a year. That’s another four truck payments. It’s now costing you four payments a year to own a used truck or $6,000 a year. Let’s not forget the advantages of letting that customer know you have new equipment to move his precious freight.