Time for a new truck?

Equipment replacement should hinge on thorough fleet, market assessments

BY TOM QUIMBY

Demand for used trucks is climbing along with shipping rates, so now might be a good time to swap out aging trucks for new ones — at least for some fleets.

Such decisions are rarely that easy. Plenty of other factors should be considered before signing on the line, such as fuel economy, maintenance costs, warranty expiration, new safety technologies, freight forecasts, truck financing options, driver comfort and fleet depreciation.

Dealers are advertising attractive incentives, but it all starts with making thorough assessments and doing the math before racing out to a dealership.

But even for some fleets where budget battles rein, new trucks can make a lot of sense.

“Whether a company is in financial difficulty or not, if there is a business case that newer equipment will lower the cost of ownership, then a company should upgrade their equipment when possible,” said Brent Rottweiler, vice president of remarketing for Volvo Trucks North America. “If a new truck purchase is not an option, companies should look into upfitting their existing fleets with cost-saving items such as telematics, aerodynamic trailer and

“The transportation industry can be difficult to predict six months or more out, especially now,” said Don Nash, territory manager for Ritchie Bros. “COVID-19 has certainly put an exclamation point behind that for the industry. The positive trend we are enjoying now is conditioned on multiple pressures within manufacturing, supply chain, logistics and even employment levels.”

exterior truck upgrades, etc.”

Vehicle depreciation, traditionally the biggest cost fleets bear within a few short years after acquiring new equipment, is a big factor in determining when to pull the trigger on a trade-in.

“Customers should make sure they properly depreciate their equipment so they are less likely to be in a negative equity position at the time of trade-in,” Rottweiler said.

Ron Long, executive vice president of sales and marketing for Premier Truck Group, said duty cycle and equipment depreciation play key roles in knowing when to say “yes” to new trucks.

“If you don’t put a lot of miles on a truck, you may be more inclined to keep that truck longer,” Long said. “But the other thing is where that truck is in its depreciation and how that fleet chooses to depreciate the lifespan of their trucks, because we see an aversion to trading when there’s a perceived loss on sale, and we see customers more willing to trade when they’re in an equity position.”

Used truck values also come into play, and demand has been high lately.

“That fluctuation in the strength of the used truck market obviously can have a big impact,” Long said. “Being able to take advantage when the used

truck market is strong, I think, could be a competitive advantage for a fleet in giving them the ability to refresh their fleet earlier than their typical trade cycle.”

Hot used market or not, it may be best to exercise caution, said Don Nash, territory manager for Ritchie Bros.

“While it’s true that we are seeing record numbers of trucks in our auctions and pricing is trending in the right direction, the best time for a fleet to remarket their assets is always ‘when it’s time,’ ” Nash said. “Negative cost impacts from waiting too long to replace units can and will result in far more loss than the sometime volatility of the secondary resale market.”

Tech it out

Rapidly evolving technology is exciting on various fronts. Blink, and something’s more efficient and safer than it was yesterday. But not only that, having the latest, greatest technology also can attract and retain more drivers at a time when they’re needed most.

“Fleets typically establish trade cycles based on maintenance costs, durability and usage/mileage factors, but newer well-spec’d trucks are used as a driver selling point,” said Don Ake, vice president of commercial vehicles for FTR.

However, holding on to old trucks particularly as new trucks with the latest bells and whistles continue to hit the market may come back to bite a fleet. It recalls scenes of that popular kid in the neighborhood with the latest TV, computer, video game and ultra-fast Wi-Fi: Everyone wants to be at his house. The analogy’s not too far off for drivers who are looking to be comfortable, connected and protected by the latest technology. If they’re less than satisfied, you may hear about it, or they may just vote with their feet.

“Driver feedback is critical, especially if you’re a fleet hearing similar comments from multiple drivers,” said Chris Visser, senior analyst and product manager of commercial vehicles for J.D. Power. “Sometimes decisions as simple as upgrading to a better driver’s seat can make a difference. And if you’re hearing comments about drivability, there may be an opportunity to spec your next order differently.”

In addition to attracting new drivers, having the latest safety technologies in place also can invite lower insurance premiums and fewer accidents.

“What we’re currently seeing is a huge focus on safety and various safety system technologies,” Long said. “Autonomous braking, adaptive cruise control, lane guidance, lane keep assist, sideguard assist to see down the blind-spot of the trailer — all of these technologies have a huge impact right now for a number of reasons.”

Fewer accidents mean fewer repairs and reduced insurance costs and legal fees, Long said. “We hear stories about nuclear verdicts,” he said. “We hear stories about insurers dropping fleets, or at least putting them on a timeline of being dropped if they don’t adopt the safety systems. There’s a lot of trucks out there on the road today that don’t have those safety systems. That seems to be a big push right now where we see fleets looking to make the decision to upgrade.”

Also, newer engine technologies can result in improved fuel mileage and lower maintenance costs.

“Improved fuel mileage decreases out-of-pocket fuel costs,” Rottweiler said. “Advanced connectivity services and telematics can increase uptime and productivity, saving the customer time and money with faster and less costly repairs due to early fault code alerts and over-the-air updates. It’s up to the customer to determine the ROI and tradeoff between keeping their used trucks running or trading them in for the most up-to-date models.”

ROI also can be impacted by transmission options. With a lot of young prospects already leery of trucking being a grind, fleets are spec’ing more automated transmissions in new trucks.

“Over the past six to seven years, we’ve seen a tremendous shift out of manual transmissions into automated transmissions,” Long said. “If I have a fleet of late-model trucks with manual transmissions, that may be a reason to accelerate my replacement cycle, because I want to get into automated for efficiency as well as driver recruiting and retention. Automated transmissions opened up the driving career to a lot of people that otherwise would have not been interested or maybe felt unqualified.”

What the market will bear

When trading in a used truck, it’s not just the condition and mileage of the truck that counts, but also the fleet’s reputation. Word gets out on who takes care of their trucks and who doesn’t,

“It’s an individual fleet decision on whether to or when to purchase, when to grow their fleet and when they may reduce the size of their fleet, but it’s very common for our team to be talking about the used truck market and the situation in the financial market as far as favorable rates or increasing rates, as well as all the new technologies coming on the trucks, to help our customers determine that decision,” said Ron Long, executive vice president of sales and marketing for Premier Truck Group.

which can impact trade-in value.

“Fleet reputation is a key factor in resale value for a company’s equipment,” Rottweiler said. “Part of this is attributed to how a company maintains and services their trucks, and part is associated with not just the age of the fleet, but also how they are equipped, i.e., aluminum wheels, trim levels, interior features and packages, etc.”

Some duty cycles are more demanding than others, which can impact trade-in value. Still, fleets that are more dedicated to maintenance will come out ahead.

“Factors impacting resale/trade value is equipment wear, in both mechanical and cosmetic terms, that can be attributed to specific use like refuse hauling, petrochemical transport, regional hauls in rough or high-traffic conditions, etc.,” Nash said. “This includes known wear issues on emissions, frame, drivetrain and undercarriage components that are often costly to repair and will directly impact resale value. All of this emphasizes the need for a robust maintenance program, routine periodic inspections and equipment performance reviews to help deliver you the best possible resale values.”

Warranty coverage is another factor when considering trade-in value. “One of the things that make a huge impact on maintenance costs increasing on that truck that’s over four years old and over 500,000 miles is the expiration of engine and/or transmission and axle warranties

“The top make and model truck being sold at auction these days is the Freightliner Cascadia, with more than 650 units sold in the U.S. in one month (June),” said Don Nash, territory manager for Ritchie Bros.

— engine in particular,” Long said. “The concept of having engine repairs being paid for by warranty versus being paid for by the fleet is a huge impact on the cost of ownership and operation.”

Having a little warranty left on a truck can go a long way in terms of resale value. “With that, at the same time, buying an extended warranty is an option the customer chose upfront,” Long said. “So if you didn’t buy enough warranty, or you bought more warranty, it might influence when you trade. We always like to advise customers to trade with some warranty left. It allows that next buyer to get that truck and put it on the road for a few months with warranty coverage, which is a huge impact on being able to sell that truck in a secondary market.”

Assessing the market itself also is important prior to making a big decision on equipment acquisition.

“The fleets want to make sure they have freight to haul and be profitable before buying new trucks,” Ake said. “So looking at freight forecasts is important, because they indicate future sales and the need to expand the fleet. Rate trends and forecasts are an indication of future profits, determining if the fleet has the funds to buy new trucks.”

As of late, the market has rebounded, though still not quite to pre-pandemic levels.

“It’s a better time than it was a few months ago,” Ake said. “The freight markets have recovered faster than expected, pushing rates, especially spot rates, higher. OEMs and dealers are offering price and financing incentives to move inventories. If you are confident that you have a decent supply of freight going forward, it’s not a bad time to buy new trucks. Fleets may accelerate replacement cycles some if new trucks offer cost savings through fuel efficiency or safety features. Typically, this would be for fleets implementing four- or fiveyear replacement cycles.”

If everything’s penciling out, then you may want to buy now versus later.

“Incentives have pulled back from the peak of a few months ago, but there are still programs like delayed payments, attractive finance rates and lease deals to explore,” Visser said. “Inventory should increase incrementally from here on out, but I’m not sure if there’s much benefit to delaying a purchase at this point unless you literally can’t find the specs you need.”

Buying used may prove to be the better choice. If so, explore your options to maximize value.

“The online truck sales websites are a good place to start to see what’s out there and at what asking price,” Visser said. “When you get more serious, start watching the large no-reserve auctions to see what trucks are selling for. You could end up buying a truck that way. Also, most of the large fleets sell some of their own equipment online, and that equipment has generally been well-maintained.”