Learning from a crash course
Most everyone has suffered from the recession, though most Americans were not responsible for the housing market collapse that set it off. For that you can thank sub-prime mortgage borrowers and reckless financiers who giddily inflated the credit market to absurd levels.
From their spectacular fiasco, there are lessons to be learned. Here are a few gleaned from reading Michael Lewis’ best-seller, “The Big Short.”
AVOID BEING OVER-LEVERAGED. Around 2005, free-wheeling lenders and home buyers thought housing prices would rise forever. Lenders made ridiculously large loans to borrowers with ridiculously low incomes and credit ratings. It was just a matter of time before widespread defaults would bust everyone’s bubble.
You know how easy it is for an owner-operator to rack up too much debt. A large truck loan with double-digit interest is bad enough. Throw a few maxed-out credit cards in the blender and you’ve got a deadly concoction. Successful owner-operators never take on more debt than they can manage to repay on a regular schedule.
ALWAYS HAVE A RESERVE. Remember AIG? American International Group’s fatal exposure was blindly insuring bonds based on subprime home loans. When it came time to pay up, AIG had its pants down. It received a $183 billion taxpayer bailout to honor its commitments.
Like insurors and banks, you’re subject to developments that could threaten your livelihood. At the very least, your equipment wears out. Smart owner-operators save in proportion to miles run. Overdrive’s Partners in Business program recommends maintenance savings of 3 cents per mile for a truck with fewer than 150,000 miles, escalating to 12 cpm for 750,000 miles and more. This requires discipline, but it’s much harder when you deny the inevitable.
LOOK FOR BIG UPSIDE POTENTIAL. Before the housing market showed signs of impending doom, a scattered handful of very smart guys studied mortgage data that seemingly smart people overlooked, preferring to stick to business as usual. The few independent thinkers, and later others, placed virtual bets that trillions of dollars in home loans were going to go bad in a matter of months. They could lose a little if they were wrong, but could make fantastic profits if they were right. They were.
Most owner-operator businesses stick to a leased operation with ordinary freight. That’s fine for an operator who’s doing the basics and satisfied with his net income. Those who stand out in terms of large income, though, almost always have grasped opportunities others overlook. It could be shippers ripe for the picking by a small independent operator. It could be niche hauls that require special trailers, elaborate securement or tedious government clearance. Making these moves requires risk, money and time, but the return can be substantial.
Such opportunities will increase as the economy struggles to get on its feet, and trucking already is ahead of the curve. It’s easy in the flush of good times to forget lessons so clearly illustrated during hardship. It’s best not to.