How the chaos affects you

Max Heine

The economy’s ride this fall has been rougher than washboarding on Arkansas’ I-40 during the 1990s. Congress finally passed its mega-bailout, but that doesn’t mean anyone’s bailing you out of an awful credit market.

I talked with three trucking accountants about how the economic mess impacts owner-operators: Kevin Rutherford of ATBS, also a small fleet owner and host of “Trucking Basics and Beyond” on XM Satellite Radio; Russell Fullingim of Truckers Financial Service in Corning, Calif.; and Perry Wiseman of Truckers Accounting Service in Omaha, Neb. Here’s their advice.

CUT DISCRETIONARY BUYS. “I think everybody’s kind of reining in their spending because they don’t know what’s going to happen,” Wiseman says. “I don’t see a lot of guys trading trucks as much as in the past.”

BUDGET. That economic uncertainty means it’s more important than ever to stick to a budget. “Most of the people I see with trouble making mortgage payments – it’s because they spent their money in other places,” Fullingim says. “They’re not budgeting.”

MOVE AWAY FROM DEBT. “The biggest thing now is to get in a good cash position,” Rutherford says. “No matter what happens, credit is going to be really tight for a long time.” The rules have changed, at least for now. “We’ve always had a business model where you rely on equity in a trade in order to get the next truck and never have any cash. We might want to think of trading in and having 20 percent in cash.”

IMPROVE YOUR CREDIT RATING. A bad credit rating that before was merely expensive could now put you out of the market altogether. To improve your rating, Fullingim recommends the basic best practices: paying bills on time and in full, not partially; and getting rid of credit cards. If you’re planning to trade in six months or so and it appears credit will be unavailable or too costly, Rutherford says, “possibly a better business plan would be to start saving cash to do an in-frame, and maintain the truck, and not need credit for a while.”

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MAINTAIN RETIREMENT SAVINGS. Keep up your contributions (as well as health insurance premiums), Fullingim says, no matter how tight things get. Rutherford recommends, “Anybody who is more than 15 years away from retirement, I’d encourage them not to change anything about their retirement planning.” The current crisis is “just a big buying opportunity,” whether for a longtime investor or someone who needs to start a retirement account, he says. An owner-operator with less than 10 or 15 years until retirement should check with his adviser about adjusting his portfolio in case the stock market doesn’t recover for years.

Wiseman agrees that diversification is in order for some people. One client told him he was sick of making retirement contributions and watching stock prices plunge. Instead, “He’s going to go buy a house out in California, where the market’s really, really down, and have a relative live in it till he’s ready to move back to California in five to seven years.” By that time, he believes real estate will have rebounded more than the stock market. “Not a bad idea if you have the resources,” Wiseman says.

Time to purchase a land-based sleeper?
For a long-hauler, especially a single guy out for weeks at a time, renting a little space to call home can be a sensible thing.

But if you’re tired of flushing away thousands of dollars in rent, you’re one of the few people who might profit from the current crisis. That’s because a first-time homebuyer gets the advantage of depressed prices without the disadvantage of having to sell in a buyer’s market.

Average prices by September had fallen 8 percent from the housing market’s peak in 2006. Some projections have the trough going as low as 20 percent of that peak by 2009.

Still, in a world where everyone’s been burned by sub-prime loans, be forewarned:

  • You have to score a loan in a tight credit market – tough, if not impossible, with a low credit score.
  • Those who qualify will still pay higher interest rates than before.
  • You’ll probably have to cough up a bigger down payment, as much as 20 percent.
  • Prices could fall further and remain low after you buy.