Hard Financial Choices

Todd Dills | September 01, 2009

$118,000

Five-year TRAC lease, $2,195.78 monthly payment

Total payments: $131,746.80

Ending term 20 percent buyout: + $23,600.00

TOTAL COST OF VEHICLE: = $155,346.80

Cumulative tax savings: – $62,604.75

ADJUSTED COST OF VEHICLE: = $92,742.05

Conventional financing, 7.5%, five years, $2,009.81 monthly payment

Total payments: $120,588.60

Down payment (15 percent): + $17,700.00

TOTAL COST OF VEHICLE: = $138,289.60

Cumulative tax savings: – $55,682.81

ADJUSTED COST OF VEHICLE: = $82,606.79

Above scenarios and calculations based on numbers from Overdrive research and online calculators at MSN.com and SLS Financial.


 

Do an in-frame or trade?

With today’s tight credit and rising new truck prices, an in-frame overhaul to keep a rig running might be more popular than ever. Still, for a borrower with excellent credit and solid buying history, trading the old truck is often the best choice, as this example shows.

It assumes an interest rate of 7.5 percent on the new truck loan, which is available today only to borrowers with better-than-average credit. As that percentage increases, the in-frame choice looks better.

A typical in-frame will consist of “replacing cylinder kits and heads, injectors, the turbo or turbos – the power-producing parts, really,” says Bill McClusky, ATBS maintenance management consultant. If done at a shop in the engine manufacturer’s network, warranties on an overhauled powertrain are available – and worthwhile for the price, says owner-operator Ken England. He purchased extended coverage for an overhauled Caterpillar C12 for five years at less than $2,000, and the warranty saved him around $5,000 in repairs and towing charges.

One variable not accounted for in this example is the expected downtime associated with any older truck, overhauled or not – the “wild card,” as Schneider Financial’s Dan Kleiser, lease portfolio manager, calls it. “You count on needing the overhaul, but you don’t count on the nickel-and-diming that comes along with an older truck.”

Twelve cents or more per mile in maintenance savings is the industry’s operative figure for trucks older than five years. Considering that, a new or late-model truck starts to look pretty good, especially after an older truck’s extended period in the shop – or a $1,000 tow bill.

This comparison doesn’t include financials beyond year three, when in this scenario the powertrain warranty on the in-frame runs out. In the fourth and fifth years, you’ll still be making payments of $2,000 a month on the new truck. Maintenance costs for the in-frame and other needs go on, but you could continue to run that truck for several more years. “If the truck remains in good condition,” says Chris Brady of Commercial Motor Vehicle Consulting, the owner-operator “can run it for another year or four years – he’s reducing his cost of ownership. The longer you own the vehicle, the better ownership becomes.”

In today’s economy, with investment return rates low and short-term interest rates high, it’s usually better to pay off high-interest credit card debt before considering any new savings or investments.

“You’re getting very low return on your cash today,” says analyst Chris Brady. “Money market returns are only 1 percent.” Because credit card debt is often at double-digit levels, paying it down produces a far better yield for your available cash.

In-frame overhaul

at 900,000 miles

Repair: $18,000

3-year/300,000-mile powertrain warranty coverage: + $1,000

TOTAL REPAIR COST: = $19,000

300,000-mile maintenance costs: + $36,000

Cumulative tax savings: – $4,500

Cost over three years: = $50,500

Trade for new truck

($118,000) at 900,000 miles

Down payment minus trade-in credit: $2,000

3 years of payments (at 7.5 percent): + $72,353

TOTAL TRADE-IN COST: = $74,353

300,000-mile maintenance costs: + $9,500

Cumulative 3-year tax savings: – $39,589 Cost over three years: = $44,2649

 

Save extra cash or pay down debt

In today’s economy, with investment return rates low and short-term interest rates high, it’s usually better to pay off high-interest credit card debt before considering any new savings or investments.

“You’re getting very low return on your cash today,” says analyst Chris Brady. “Money market returns are only 1 percent.” Because credit card debt is often at double-digit levels, paying it down produces a far better yield for your available cash.

  • Rodney Kolb

    Mr. McClusky
    In July issue of overdrive I was reading the DIRTY DOZEN and I am interested in where I can have a differential oil analysis preformed. Thank you!
    Rodney Kolb
    42439 T.R. 296
    Dresden, Ohio 43821

  • http://channel19.blogspot.com Todd Dills

    From Bill McClusky about differential analysis:

    Hi Rodney,
    I am replying to your question regarding where to have a differential oil analysis performed. The best way is to have your mechanic or service facility take the sample from the differential and send it to a laboratory for analysis. If you are mechanically inclined and have a suction pump you can take the sample yourself.

    ATBS (www.atbsshow.com) also has a maintenance management program that assists owners with proper maintenance of their truck. Oil analysis and guidance are a part of the service. We work with several different laboratories and all of those listed below provide excellent analysis.

    If you do it on your own, the first step would be to call one of the labs listed below and order an oil sample kit which includes the sample bottle and the analysis. Take the sample and return it to the lab. They will send you an analysis report and you can call them for further explanation. As part of our maintenance management program, we go a step further and provide not only a detailed explanation of the analysis report but also work with you on the best way to correct any issues and maintain your truck going forward.

    If that’s something you might be interested in give ATBS a call at 866-431-0370 and we can give you more information.

    Labs:
    Polaris Laboratories, 877-808-3750
    Titan Laboratories, 800-848-4826
    Analysts Inc, 800-241-6315