Vic Holtzinger had to dump four trucks when he declared bankruptcy three years ago, but now he’s back as an owner-operator with a lease-purchase agreement.
In 2001, Vic Holtzinger added his four trucks to the glut of used trucks when he declared bankruptcy.
Now the Athens, Texas, resident is buying a 2001 FLD 120 on a lease-purchase agreement for $48,000 through Dart Transit’s Lancaster, Texas, office.
Also in 2001, Vern Garner, president of Ohio-based Garner Transportation, decided to continue using 20 trucks he had planned to sell. At that time, his tractors had an average odometer reading of 500,000, but he could only get $7,500 to $8,000 per truck.
Today, 300,000 additional miles later, these same trucks are fetching $9,500 to $12,500. Garner, immediate past president of the American Trucking Associations, says other fleet owners report similar experiences.
Many who weathered the 2001 used truck glut appreciate today’s tight used truck market. The 2001 recession and the resulting trucking bankruptcies flooded the market of used trucks. Since then, a better economy, a strong freight market, lower interest rates, and the premium placed on trucks with pre-October 2002, engines have turned that picture around.
“A lot of fleets are trading in now,” says Tal Matthes, used truck manager for Kansas City’s KRC International Trucks. “They waited because they couldn’t get the value before. And owner-operators are getting back on their feet and buying again.”
Mike Coldiron, salesman at Music City Truck and Equipment, remembers his La Vergne, Tenn., business offering a two-for-one sale on 14 trucks. Customers could buy either a 1997 Volvo for $39,900 or a 1995 Freightliner for $29,900 and get a second matching truck free.
“There was a tremendous oversupply of used trucks,” Coldiron says. “Now the used truck market is very tight.”
Used truck dealers estimate that if they sold the same trucks with the same specs and mileage as in 2001, today’s trucks would bring a premium of $3,000 to $15,000, and even more in some cases.
Trucks with comparable mileage and specs would go for 30 percent more today than in 2000, says Mike McColgan, remarketing manager for Volvo Trucks North America.
One hot niche is trucks selling for $25,000 or less, says Wafik Elsanadi, Freightliner’s director of used truck sales. That’s been driven partly by demand overseas for low-priced used trucks, he says. Also, more domestic fleets are buying used, Elsanadi says.
The seeds of the used truck surplus were sewn in the late 1990s as truck makers maintained generally high production levels. Freightliner was particularly aggressive, signing many residual-value buy-back deals with fleets to encourage sales of new trucks.
By 2001, the overstock became clear and prices fell. Coldiron attributes the glut to the large number of trucks built in 1998-99, the economic downturn, rising fuel prices and insurance premiums, and owner-operator and trucking company bankruptcies. “We could have handled one or two of those, but not four or five,” Coldiron recalls.
Customers trying to avoid buying engines meeting low-emission standards, mandated for sale by October 2002, “helped the used truck industry get back on its feet” as that deadline approached, says Eddie Walker, a former Peterbilt general sales manager, who in 2001 opened Best Used Trucks in Fort Worth, Texas.
“In 2001, they started buying the latest model with as low a mileage as they could,” says Walker, who is also president of the Used Truck Association. “They initially bought 100,000-mile vehicles.” As that supply decreased, customers eventually bought 400,000-to-500,000-mile trucks.
Manufacturers’ production declined during 2001-03, which also helped mitigate the overflow of used trucks.
After a year of mixed economic indicators in 2003, a recovery seems more pronounced in 2004, based on trucking-related and general economic indicators.
The used truck market’s turnaround also became evident early this year, says Sheri Aaberg, vice president of the Colorado-based truck financing firm, Highline Capital Transportation. One sign of that is the dwindling inventory of a Dallas-area repossessed trucks dealer, says Craig Kendall, director of pre-owned equipment for Peterbilt. Also, auction companies that used to offer large numbers of repossessed trucks no longer have so many, Kendall says.
Many of the repos available in 2000-2001 were barely used, says UTA Chairman Steve “Bear” Nadolson. “Now low-mileage, late-model trucks are at a premium,” says Nadolson, used truck manager at Nashville Peterbilt.
Truck utilization is at a historically high level because the economy and freight are both very strong, says Stu MacKay of MacKay & Co., a market research firm that focuses on commercial trucks and other equipment. “The used Class 8 market is in great shape,” MacKay says. “Prices are strong and should stay that way over the next 18 to 24 months.”
“Stu MacKay has a great saying,” says Volvo’s McColgan: “‘Small operators are the shock absorbers of the industry.'”
Small operators are first to feel the effects of a recession, but also the first ones to feel a positive upswing. “That has occurred this year,” McColgan says, citing increases in freight rates and the industry’s greater success in getting fuel surcharges.
In late 2002 through 2003, the used market improved and prices went up. “2004 is an extraordinary used truck market,” he says. “Inventory is actually stripped.”
Some of those driving the demand for used trucks are former owner-operators who became company drivers during the downturn. “They got sold too much truck with too much of a payment for them,” Walker says. “But they worked their buns off and now they are coming in with a good down payment.”
The big mitigating factor, though, is expensive diesel. Walker warned in the association’s April newsletter that used truck dealers should keep their eye on fuel prices because that could limit customers’ buying power.
That’s not news to Curtis Abram, a company driver for Florida-based Sunbelt Transportation. The long-time trucker bought a 1998 Freightliner Century Class in the spring of 2001. But diesel increases over the past year forced him to give up his truck in April with only one year of payments left.
“2001 wasn’t as hard as 2003,” says the Tuscaloosa, Ala., resident. “Anything over a $1.50 per gallon for diesel kills all the profit.”
Diesel prices will help determine when owner-operator Donald Coffin buys his next used truck. “If diesel doesn’t go down, I’ll probably hang onto this truck as long as I can,” says Coffin, who is leased to Michigan-based Frederick Thompson.
Walker recommends prospective first-time owner-operators work through two or three used trucks before buying new, which Coffin has done. The Leavenworth, Kan., resident is driving his second used truck since 2000, a 1999 International 9400, and expects his third truck to be used as well.
A year ago, Joe Stabler bought his third used truck on a lease-purchase agreement from his carrier, Alabama-based Southeast Logistics. But the Brent, Ala., resident says his next truck will be new. “I want something that won’t break down in a couple years, and you can get a better interest rate on a new one,” Stabler says.
Interest rates are lower now than in 2001, says Mark Lewis, Paccar Financial’s marketing manager. A person with average credit who might have received a loan at 12 percent to 13 percent then would probably qualify for 11 percent to 12 percent now, he says.
On June 30, the Federal Reserve raised the federal funds rate to 1.25 percent. Many analysts predict a gradual rise of a quarter-point at a time until it reaches 4 percent by the end of 2005. Interest rates of loans for trucks and other things generally trend with that rate.
Regardless of interest rates, some customers will pre-buy before the next level of lower emission standards takes effect in 2007. Garner, for example, says he will order 25 new trucks in the third quarter of this year and plans to buy new and used before 2007.
Freightliner’s Elsanadi predicts the used truck market, beginning in the fall of 2005, will feel a slight impact from pre-buys.
Many buyers are motivated more by features that have traditionally interested owner-operators – high horsepower and a nice sleeper – but not as many as a decade ago, say industry experts. Kendall says he finds more owner-operators are seeking an aerodynamic truck.
“They look at fuel mileage and they say they want something that makes a return on their investment,” Walker says. “There are more educated owner-operators today than there ever have been in the industry.”
MORE DOWN TO GET UP AND RUNNING
While interest rates have dropped, down payment requirements are more realistic than during the easy-credit days of the late 1990s.
That’s partly because a lot of lenders learned some hard lessons during the recent downturn. Some finance companies were put out of business when trucking bankruptcies increased, says Sheri Aaberg, of truck financer Highline Capital Transportation. Other lenders simply left the trucking industry.
“Across the board, finance companies have returned to more traditional underwriting,” Aaberg says. Craig Kendall of Peterbilt says that in the 1990s, some truck loans required almost nothing down, but had a high monthly payment. “That practice is being curtailed,” he says.
John Tompkins of Piedmont, Ala. who has been a trucker for 40 years, was able to pay cash for his 1985 Freightliner conventional a decade ago. But when Tompkins, who is leased to Illinois-based Patrick Transport, bought a 2000 dropdeck, he used credit – and had to put a hefty down payment on it.
Eddie Walker, president of the Used Truck Association, says he’s read that the average used truck down payment in December was 17.5 percent of the purchase price.
Mark Lewis of Paccar Financial says owner-operators now can expect to put 20 percent down for a used truck loan. He sees more applicants today that are qualified for a loan and fewer failing to meet loan requirements than in recent years. Lewis says more truck buyers seem to have secured their own financing before getting to the showroom.
Also, finance companies expect more recourse from dealers – in other words, that the dealer take responsibility for a percentage of the truck’s cost if the customer defaults, Kendall says.
USED TRUCK RESOURCES
The Used Truck Association offers the following free pamphlets:
- What is a Low Mileage Truck?
- Trade Terms & Conditions
- Succeeding as an Owner-Operator
Call (800) 827-7468 or visit this site.
- The True Value Guide – Published by Taylor & Martin truck auctioneers. Quarterly edition, $15.00; annual subscription with monthly updates, $195. Call (800) 654-8280 or visit this site.
- The Official Commercial Truck Guide – Published by the American Truck Dealers section of the National Automobile Dealers Association (NADA). Call (800) 544-6232.
- Blue Book – One-year subscription, $119.95. Call (800) 654-6776 or visit this site.