34 | Overdrive | July 2015

The market for used trucks, favored by owner-op-erators in

three out of five purchases, is better than it has been in years. Thanks to a higher volume of newer used trucks

becoming available, prices have dropped. Also, interest rates are in owner-operators’ favor, particularly those with good credit.

“One thing we look at is build rates,” says Mike Mee-han of the Fleet Advantage leasing service, which is

geared toward larger fleets. Because of the recession, production was low for 2008-’10 model trucks, most with 2007-’09 emissions-spec en-gines. Many owner-operators also were reluctant to buy then due to emissions-system performance.

Because supply was low, pricing for those trucks has “been very lofty for the last 18 months or so,” Meehan says. As the economy recov-ered, production picked up. Now many of the 2011-’13 model-year tractors, with post-2010 engine technology,

With the credit market loosened and late-model used truck prices looking better, it’s a good time to trade, but watch out for problems with emissions systems. BY TODD DILLS

marketBuyers’

July 2015 | Overdrive | 35

are hitting the used market. They’re more affordable and expected to get more so year over year as times goes by.

It’s also a better time for getting a truck loan. The cost of borrowing is gener-ally low, says Matt Manero, president of Commercial

Fleet Financing: “Credit is somewhat liberal right now.” He listed his company’s guidelines for creditworthi-ness:

“A” credit borrowers, 700+ credit score: If the piece of equipment makes sense relative to the owner-opera-

tor’s time in business – “the stability factor,” says Manero – the borrower can get a loan at about 5 or 6 percent.

“B” credit, 650-700 : About 7 to 9 percent.

“C” credit, 600-650: Above 9 percent to the low teens.

Below its “C” level, the “subprime” space, CFF usually doesn’t finance bor-rowers.

Measuring through the first quarter of this year, prices for two- to three-year-old sleeper tractors were down about 3 percent year over year, based on data in the May report from the National Auto Dealers Asso-ciation and American Truck Dealers.

This illustrates a trend Meehan sees among his customers – the acceler-ation of trade cycles as new-truck fuel-economy performance continues to improve. “It started with the for-hire carriers, who figured it out pretty quickly” as the transition to selective catalytic reduction emissions systems was made and the new 2010-and-later emis-sions-spec engines were put into service. Then large private fleets took the same approach.

Today, such entities are “putting 2013-’16 model years into service, and they’re seeing such an improvement

in fuel economy” that the movement of those vehicles through the trade cycle to the used market, as well as the trucks they replace, is accel-erating. “They may hold on to a tractor for four years,” Meehan says, instead of the seven years that had become common.

Meehan and Fleet Advan-tage are advising fleet clients with truck remarketing de-partments that now is a good time to consider getting more aggressive with trade cycles as used prices fall.

Landstar-leased own-er-operators John and Jamie Bynum bought their second truck from such a remar-keting wing in 2013. Their 2009 Freightliner Century, purchased in 2013, followed a 2006 Freightliner bought from Schneider National’s truck sales arm, Schnei-derTrucks.com. At that time, they were close to the end of a lease-purchase when, Jamie says, they temporarily got out of trucking for personal reasons.

As the Bynums, with a home base 40 miles north of Tampa, Fla., later considered buying a truck for John to begin driving solo, he men-tioned Schneider National, “knowing that they actually maintained their trucks well,” Jamie adds. “We’ve talked to quite a few Schnei-der drivers.”

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Which of these best describes your last truck purchase?

Source: All charted data, unless otherwise noted, from Overdrive’s 2015 truck purchasing/leasing survey

Bought used 60%

Bought new 23%

Leased/rented 4%

Lease-purchased new, used or glider 10% Bought/built a glider 3%

Owner-operator credit score distribution

Leased/rented 4%

751 or higher701-750651-700601-650

600 or lowerI don’t know

40% 16% 13% 12% 14%5% Source: June 2015

OverdriveOnline.com poll

36 | Overdrive | July 2015

BUYERS’ MARKET

They financed their 2006 Freightliner initially on a two-and-a-half-year contract with payments at about $1,000 a month. Both that transaction and their 2013 purchase of the 2009 Cen-tury were financed through CFF at “around 8 percent.” The most recent purchase remains under a three-and-a-half-year note. “Payments are right on $1,000 again,” Jamie says.

The Bynums’ credit was good enough to avoid subprime rates, but plenty of owner-operators with bad credit are going the subprime route. “There’s a whole resurgence of subprime over-the-road finance companies popping up,” says Manero.

The good side is that owner-operators whose credit was damaged in the last recession at least can get a truck loan, even if at rates above the low teens, says Manero.

The worrisome aspect is that a high volume of subprime borrowing is often a sign that “everything’s overheating a little bit,” he says. Manero sees the bal-loon in lending as presaging an imminent pop.

“We’ll have another cyclical downturn in 2016-’17,” he says. Though the Federal Reserve is talking about raising interest rates on money it lends to banks, which indi-rectly affects consumer rates, good-credit borrowers should see little change, he says, may-be “a quarter-point or so.”

Go Capital got in business two years ago to serve the subprime borrower, says Chet Zeken, director of sales, with the vast majority of its deals

structured as lease-purchas-es. The Irvine, Calif.-based outfit has grown from three employees to 70. Zeken notes partnerships with fleets and dealers as nationwide referral sources for borrowers rejected by other lenders.

He says the only customer Go Capital won’t finance is one “who’s in the middle of a bankruptcy or who’s had a repo. Other than that, the customer will be automati-cally approved for financing.” Zeken declines to specify the current loan rates.

Under subprime lease-pur-chase options, if you have to abandon the business, you often do so with no liability for payments. Still, you’ve essentially rented the truck with high payments and paid for maintenance, says South Carolina-based owner-oper-ator Steve Reichard, leased with United Van Lines.

“It feels bad when that happens to you,” and you’re left with no ability to capital-ize on any value that may be left in the equipment to put toward your next purchase, Reichard says.

But a lease-purchase is often the only option for a buyer with a shaky credit history and little to no down payment. It’s an option that’s much more common among leased owner-operators such as Reichard than among true independents with their own

authority. About half the time, these deals are struck with the carrier’s leasing arm, according to Overdrive’s survey.

Vacaville, Calif.-based Travis Fly, also leased to United Van Lines, runs in a 2009 Kenworth T660 with a 485-hp Cummins ISX. It

How common are lease-purchases?Among

independentswith:

Among leasedowner-operators

with:

Multiple trucks: 6%

Multiple trucks: 24%

One truck:3%*

One truck:18%

Among all lease-purchasers taking Overdrive’s recent survey, almost half (49 percent) reported working with a carrier-affiliated leasing company to ink the deal, which has both positives and drawbacks. On the one hand, if the carrier truly wants you to succeed, it’s got some incentive to provide more miles and better pay. However, a lease-purchase with a carrier-affiliated company can represent a commitment to stay with that carrier through the lease term. While some carriers will allow the owner-operator to take the truck elsewhere, many will not.

*Percentages indicate the lease-pur-chase choice’s share among all reports from owners on the nature of their last equipment purchase or lease.

Where owner-operators buy on the used marketIndependent used-truck dealer

Truck manufacturer-affiliated dealerPrivate party

Motor carrier-affiliated sales wingAuction

Other

34% 30% 28% 5% 2%1%

Owner-operators who bought their last truck used reported these sources for the deal:

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Where owner-operators buy on the used market

38 | Overdrive | July 2015

BUYERS’ MARKET

was lease-purchased with a $10,000 optional balloon payment at the end of three-and-a-half years of about $2,000 monthly payments. By the end of the lease-pur-chase, he’ll have put about $94,000 into the T660, not counting maintenance expenses.

Compare that figure to the NADA average retail price for a 2011 today – about $65,000. With a robust 20 percent down payment of about $13,000, $52,000 financed by a good-credit borrower over a three-and-a-half-year term at 5.5 percent amounts to about $57,500 paid, or a $70,500 total over-all purchase. That’s more than $20,000 less than what Fly ultimately will pay for a truck that’s two years older.

The comparison shows not only the benefit of good cred-it, but also the change in the used-truck market with model years after 2010. Fly says when he entered the lease deal for the 2009 T660, the market value he was best able to determine was $85,000.

“It’s almost paid off,” with only about 390,000 miles on it, says Fly. “I’m probably going to keep it.”

If so, he’ll join the fourth of all lease-purchasing own-er-operator respondents to Overdrive’s survey who com-pleted the lease to proceed to full ownership. As of now, he’s part of the half that at least intend to, providing maintenance issues don’t rear their ugly head. He’s seen no real problems from the emissions system on the Cummins-powered unit over the two years he’s had it.

For long-established owner-op-erator small fleets, strong local banking relationships are valuable. “The key there is to educate the lender” on the necessity of the purchase, says Fleet Advantage’s Mike Meehan. More and more, he says, it’s critical to prove your case with data, demonstrating “what the new equipment will do to my cash flow. It will be evident in the numbers when you look at, say, fuel economy in a 2014 model truck versus a 2009.”

If you’re going to veer from a trusted financing partner for a better deal, don’t neglect the fine print. Emissions system issues in his 2012 Kenworth dump truck aside, owner-opera-tor Dave Palmer cited a decent experience with the $80,000-plus he financed at 5.5 percent with Paccar.

“I talked to the bank, who would actually match that rate, but the reason I went with Paccar is that they ‘gave’ me an extended warranty,” including two years or 275,000 miles on the emissions system, thankful-ly. “It’s out of warranty now,”

and Palmer’s already a few thousand in repairs in the hole.

What he neglected to note in the deal was a clause address-ing early payoff. “I paid it off in two years, four months,” he

says, rather than the deal’s six-year term. “I was penalized around $1,800,” he says. “I hated that, but it was ultimately worth it for the warranty coverage.”

Comparing lenders’ offers

The financing routes of new and used buyersThose buying new or glider Those buying used

Cash 12% Cash 32%

Bank loan

42%

Bank loan 37%

Specialty financing company 41%

Specialty financing company 25%

Other 5% Other 6%

Owner-operator Dave Palmer and his 2012 Kenworth T800 dump truck.

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Average retail price by model year$140,000

$120,000

$100,000

$80,000

$60,000

$40,000

$20,000

$0

2007 2008 2009 2010 2011 2012 2013 2014

Jan-14 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-15 Feb Mar Source: May edition of NADA/ATD’s Commercial Truck Guidelines market report

Note the steeper decline in the straight trend lines for model years 2011, 2012 and 2013, indi-cating sharper declines in used truck prices. The report shows 2013 models averaged $86,105 through March 2015, a 3.1 per-cent fall from comparable 2012 average prices the prior year.

40 | Overdrive | July 2015

For buyers of new post-2010 emis-sions-spec equipment in Overdrive’s survey, 23 percent reported the emis-sions system as their most significant maintenance issue. For buyers of new 2007-09-spec equipment, the share is higher – 29 percent. For those later model-year ranges, “emissions system components” is second only to “routine maintenance” in maintenance-issue choices in the survey.

The problems for those buying post-2007 equipment on the used market are more pronounced – almost four in 10 owner-operators reporting emissions problems for 2010 and newer equip-ment, three in 10 for 2007-’09. This underlines the importance of mainte-nance records in evaluating a used truck purchase or lease.

South Carolina-based Steve Reichard in late 2013 used Johnson Leasing of Ap-pleton, Wis., to upgrade to a California Air Resources Board-compliant truck. Reichard had been going through a di-vorce that took his credit with it. Given that he runs for California-based United Van Lines agent Chipman Relocations, he was looking to upgrade from his 1999 Peterbilt 379 to meet CARB’s upgrade deadline for the end of 2013. He bought a 2008 tractor with an engine whose emissions system gave him no shortage of trouble.

After a nightmare spanning four months at the beginning of 2014, Reich-ard had $17,000 worth of repairs on a truck he didn’t own. “That’s the equiva-lent of a year’s worth of payments,” he says. “Luckily, I kept my old truck for those four months, and I put it back on the road, and off I went.”

But not to California. Vacaville, Calif.-based Travis Fly had

a similar experience lease-purchasing through the United-affiliated Trans Advantage company. His problem was the engine in his 2008 tractor. Fly got the truck at the end of 2012, and it was “one thing after another with the emissions system,” he says. “I was in

at just under $20,000 in repairs on the emissions system” when he finally got out of it late last year.

Emissions-related issues aren’t limit-ed to any engine brand or even 2007-’09 emissions-spec equipment. Holly Knoll Services owner-operator Dave Palmer of Greer, S.C., purchased a new 2012 truck with a dump body in Greenville, S.C. He financed it at the end of 2012 at 5.5 per-

cent interest. He got the good rate partly on the

strength of his credit, partly on the size of his down payment. “I put about $57,000 down on it,” he says, financing $83,000 and some change on a six-year note with $1,371 payments.

His problems aren’t with repairs’ direct expense as of yet, given that a two-year/275,000-mile warranty on emissions

Emissions system: newer trucks’ potential handicap

In service for just two years, owner-operator Dave Palmer’s 2012 has had the sensor and mounting hardware shown in the top picture, part of the truck’s emissions system, replaced twice. The fuel doser, shown on the bottom, was replaced following what Palmer says sounded like explosions inside the exhaust aftertreatment system.

“Emissions components” as the biggest maintenance issue for buyers, by emissions-spec year*

NEW OR GLIDER2010 or newer: 23%2008-’09: 29%2004-’06: 16%2003 or older: 3%

USED2010 or newer: 37%2008-’09: 29%2004-’06: 1%2003 or older: --

LEASE-PURCHASE2010 or newer: 30%2008-’09: 47%2004-’06: 60%2003 or older: --

* Percentages indicate the “emissions system” choice’s share among all reports as owners’ biggest maintenance issue from their last purchase. Source: Overdrive’s 2015 Truck Purchasing/Leasing Survey.

BUYERS’ MARKET

July 2015 | Overdrive | 41Untitled-2 1 6/8/15 2:42 PM

components largely have covered the numer-ous repairs since putting the truck in service in January 2013. In the first couple of years of running it hauling sand, he chalked up at least two weeks’ worth of downtime associated with sensor replacements, a problem with the fuel-dosing system and more routine items, such as cleaning ash from the diesel particulate filter.

The truck is paid off, but Palmer doesn’t know what he’ll do with it if such issues continue. Until manufacturers “get the emissions system right,” he believes “we’re being taken advantage of.”

“If I were a used-truck buyer,” notes Fleet Advantage’s Mike Meehan, “I’d be very reluctant to buy if I can’t see mainte-nance and repair records” and be confident in their completeness. Emissions-system repairs quickly can explode in costs with all of the ECM-related electronics trou-bleshooting necessary to diagnose the problem.

Schneider National Vice President Rob Reich, who oversees his company’s used truck sales, sees the fleet’s equipment as valuable because it’s been well-maintained. Also, because the Green Bay, Wis.-based company purchases only new equipment, buyers know they’re dealing with only one previous owner. “We can provide the com-plete maintenance records,” Reich says.

As for the infuriating nature of emis-sions-system repairs for operators used to diagnosing their own equipment easily with a fair amount of certainty, “It’s a challenging piece of equipment,” Reich says. “They’re much more difficult to work on than the trucks of just 10 years ago. In many cases, it’s a simple problem, but it’s not easy to diagnose.”

Gliders – new trucks powered by remanned pre-emissions engines – are a growing option around those issues if you don’t haul to California because they’re not compliant there. Only 3 percent of

respondents to Overdrive’s survey reported having purchased a glider in their last acquisition, but even that share of all small-fleet truck purchases in recent years is a significant number.

If the issues Palmer, Fly and Reichard have experienced continue in other units in significant numbers, expect that 3 percent share to grow.

Reich says Schneider, like many others, likewise had a fairly significant glider program with hundreds of 2010-’11 Columbia tractors that will hit the used market next year. All have a remanned Detroit Series 60 powertrain, “some with the original drivetrain, others repaired,” he says. “There will be a good market for those.”

The fleet worked directly with Freightlin-er and Clark Power, a large Detroit distribu-torship, to put the program together, Reich says. “It’s been a good program as they hit the end-of-life mark,” which is typically five years for the fleet.