Used but Useful

| August 02, 2005

Even with higher numbers on the odometer and the price tag, used trucks can be a smart buy for a growing business

When owner-operators Ben and Melanie Easters, who are leased to Panther II Logistics, buy a truck for their fledgling fleet of three expeditors, they usually buy used. Ben says the reason is simple: “We pay our drivers a little bit more than the average, which we can afford to do because we don’t have big truck payments.”

Lower payments and immediate availability are two big reasons why owner-operators looking to expand often choose used trucks over new. However, as trucking demand heats up and the used truck glut of 2001 becomes a distant memory, used truck buyers are finding a dearth of 3- to 4-year-old power units with owner-operator specs and low mileage. Prices have risen, too.

“There’s a shortage of used trucks in certain models,” says Eddie Walker, president of the Used Truck Association and owner of Eddie Walker’s Best Used Trucks in Fort Worth, Texas. “Lower mileage used to be 200,000 miles and down; then it got to 500,000 miles and down. Now it’s 600,000 miles and down. And there’s getting to be a shortage of those.”

The average mileage on used trucks has gone up because of fewer bankruptcies among small fleets, and because owner-operators and larger carriers are hanging onto their trucks longer. Lee Wallace, senior vice president of sales and marketing for Arrow Truck Sales, warns buyers to be flexible about mileage expectations in a used truck. “The average Class 8 used truck that Arrow sells has increased in mileage by over 70,000 miles over the past 24 months. Used trucks with 600,000 miles and above are readily available.”

Trucks under 500,000 with good specifications are scarce, he says.

This is true for both highway tractors and daycabs, says Peterbilt Assistant General Manager Scott Pearson. “Daycabs are the hottest units on the used market, but so are medium-duty units. Those trucks just don’t sit very long once they come back in on trade.”

Of course, some buyers have the option of paying the premium for new equipment. Doing so enables them to avoid the used truck drawbacks of more breakdowns, higher maintenance and operating costs, lack of appeal to drivers and, in some cases, no warranty.

But the nimble owner-operator looking to make a quick response to a shipping opportunity in this hot freight environment can’t always wait for a new truck. Given the backlog of orders at some truck manufacturers, thanks in part to delays with their component suppliers, adding a new rig can take as long as nine months for an owner-operator.

Bobby Wolford, who owns a 20-truck fleet, Bobby Wolford Trucking in Woodinville, Wash., says lead time was a big factor when he bought his most recent truck. Wolford actually bought six used Kenworth T800s, all spec’d for severe duty, knowing that the price was so good he’d turn a profit reselling five of them.

Price was also a major factor in his decision not to buy new. “New trucks are so expensive,” Wolford says. “A new truck with this spec would have cost me $165,000. All of these were less than $50,000 each.”

Having equipment that’s paid for is a big advantage for small carriers, who often need to avoid further strain on their cash flow. Wolford says he can pay cash for used equipment. “I have equity, and I can put them to work right away,” Wolford says.

Typically, fleet trade cycles have fed low-mileage trucks to used dealers and auctions, but many carriers have kept their trucks past traditional three- and four-year trade cycles to avoid the 2002 engines or to save money.

“The slightly older truck with higher miles is more available – trucks that are 4 to 5 years old and over 550,000 miles,” says Freightliner SelecTrucks President Bill Gordon. “It really is the result of major fleets finding that the trucks can accumulate additional miles without extraordinary costs in repairs. They’re also reluctant to order new trucks in substantial number.”

Delays at the plant can be factors, too. “Extended lead times getting new product out of the factory today have caused some fleets to maintain their trucks and continue running them,” Gordon says. “Owner-operators are also hesitant to trade in on a three- to four-year cycle because they’re concerned about the price of fuel and operating costs.”

As supply has dipped, price has gone up. A 5-year-old owner-operator-spec’ed truck with 500,000 miles on it that cost $110,000 new can now cost more than $50,000, depending on condition and options. However, those prices are in line with new trucks, which can now cost more than $150,000 with similar specs, say used truck dealers. In the past two years, the average mileage on used trucks sold by Arrow Truck Sales has gone up 70,000 miles, while the average price has gone up $7,000, Wallace says.

The shortage of 3- to 4-year-old trucks is also affecting auction supplies. “That whole market has dried up considerably,” says Paul Wachter, president of auctioneer Taylor & Martin. “We used to have a lot of repossessions, but that market has gone down dramatically.”

For expanding owner-operators, especially those without big cash reserves, buying used represents a logical strategy to reduce overhead. A truck that’s paid for can sit in lean times. A new truck has to work to meet its payments.

“A lot of my customers who are single operators are doing well and want to expand,” Walker says. “Their shippers are giving these guys an opportunity to put another truck on. They’re typically looking at used. It makes more sense.”


FINDING THE RIGHT USED TRUCK
If you’re shopping for used trucks, finding out everything you can about the units you’re considering is essential, says Used Truck Association President Eddie Walker. “Do your homework. Ask where it came from and what maintenance has been performed on it. Know the truck, its service history and the availability of warranty.”

Most used truck dealers will allow your mechanic to inspect units. If they don’t, run – don’t walk – away from the dealer, Walker says. Other advice:

  • Shop a number of dealers.

  • Look at the number of trucks sold by a dealer. “If he is turning equipment over quickly, he’s probably selling a pretty decent truck,” Walker says.
  • Check out the number of hours on the engine, in addition to the mileage. A low-mileage truck may have a high number of idle hours, making the engine much more used than it seems.
  • On trucks with 600,000 miles, check the front end suspension and bushings, says Arrow’s Lee Wallace. Even the rears may be wearing out.
  • Look for units with transferable warranties on key components. Or find large dealers that offer extended warranties and have a network to service those warranties, says Peterbilt’s Scott Pearson.
  • Contact the previous owner and find out the vehicle’s maintenance history.

A SECOND WIND THAT KEEPS ON BLOWING
The drawbacks of older equipment can be overcome, especially if you’re handy with a wrench. And in those cases, used equipment can be quite a bargain.

“More and more buyers are buying a 550,000- or 600,000-mile truck with the belief that that truck has substantial life left in it,” says SelecTrucks’ Bill Gordon.

“I have a diesel mechanic on staff,” says Harlyn Barnes, who runs 10 trucks out of Paducah, Ky. “I also can handle almost all the routine maintenance and repairs. I don’t recommend buying used unless you have the ability to work on trucks or a reliable mechanic on staff.”

Mike Limbaugh and Nick Tolleson took this approach to heart when they started White Oak Transportation six years ago. They began with four trucks and a business plan that relied on used trucks. Six years later, the Alabama carrier is running 155 of its own trucks and using 45 owner-operators. Even though it can afford new power units, the company still buys used.

“For us, it’s as much about risk as anything,” explains Limbaugh, chief operating officer. “We can match our equipment payments to the length of our freight contracts. There’s just less risk that way. The truck’s paid for.”

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