CALGARY, Alta. - The chances of getting passed along the highway by a brand new Class 8 truck increased significantly during 2005 in record numbers. With 35,281 units sold, nearly 5,000 more trucks hi...
CALGARY, Alta. – The chances of getting passed along the highway by a brand new Class 8 truck increased significantly during 2005 in record numbers. With 35,281 units sold, nearly 5,000 more trucks hit the nation’s roadways than the previous record year in 1999.
Although a little truck envy may bring on urges to open the purse strings, a few other factors need to be taken into account before snuggling into a new leather seat and breathing in that new truck scent.
The arrival of new emissions regulations in 2007 will further increase the burden of climbing into a new cab by as much as $10,000.
Finding the bottom line
One main factor in determining what price range you should be shopping in will be based on the contracts you have in place.
“Are the contracts sound number one, and number two are they lucrative enough that you can make your payments on the new equipment,” noted John Furman, president of Consolidated Fleet Purchasing. “You have to look at wages because you want to pay yourself and look at your financials to determine how much you have left to put towards a truck. But you can’t shop for something you can’t afford and that is a drawback.”
After taking into account other related costs, including fuel and tires, it should paint a clearer picture on how much money is left to spend on a truck.
For those just starting out on the O/O path, it may be beneficial to forgo financing a brand new truck during the initial startup.
“We recommend new owner/operators to have a contract in place, or at least a company in mind they have talked to, and know what type of income they are expecting,” said Galina Hogeboom of Capital Connect. “Once they know how much they will be paid and how busy they expect to be they should have some projections and subtract their expenses and see what they are left with. It’s often easier to start with a used truck to keep the monthly payments lower.”
Spec’ing that fits
More power may be tempting when sitting in a showroom; but if it is not required for the job at hand, it is better to pad the bank statement at the end of the month.
“You have to look at spec’ing your truck for the job your going to be using it for,” said Furman. “You don’t want to over spec’ your truck; you have to spec’ the truck for the job. A truck will only use the required horsepower to move a load. If you have a truck with 600 hp, but you are hauling a load of 300 hp, you end up with 300 hp running around free inside the engine.”
Getting in the clear
A higher down payment will put you on the fast track to paying off a newly financed rig and lump sum payments can also help you get in the clear sooner, if your financial company will allow them.
“I personally prefer financing versus leasing since you’ll keep the truck in the end,” said Hogeboom.
But, when looking to make larger payments and free up your capital investment, it is important not to jeopardize your expenses.”
“There’s always a benefit to paying off the truck sooner because you can free up your cash and save for a replacement,” added Furman. “If you’re too tight and you don’t have money set aside then there’s no point in this exercise. You always have to have enough in reserve and have a little nest egg, so the next time you aren’t over financing.”
In the long run the lower the interest rate attached to your financing plan, the more money you are able to keep in your pocket. Finding a good rate may not always be easy, but it is worth the hunt.
The interest rate is based on your personal credit, as well as taking into account whether you are a new business or how your business is doing if you are an existing business.
“Check with several sources and compare rates and terms of the loan for the best option,” advised Hogeboom. “The more money you put down the less interest you’ll pay; however, this is not always the best decision because you need to have some working capital available on the side for operating costs.”
Maintaining a profitable operation
When upgrading to a new rig, increased payments can put a dent in the profit margins of an operation and doubling the number of trucks does not necessarily equate into a doubling of profits.
“You really have to watch, particularly today, that the drivers don’t overextend themselves,” explained Furman. “The biggest fallacy out there is you see someone with one truck who is making good money and thinks they will double their money with two trucks. What it boils down to is when you go from one truck to two trucks, is there enough money to make money on that truck and pay a driver? One thing a lot of people forget is when they buy truck number two, is there is an extra truck driver to feed.”
With any big purchase it can always bring peace of mind to know you will be taken care of should any unforeseen circumstance arrive.
“There are some warranty options available to cover your truck payments in case you can’t, for different reasons. It might be a good idea for some and a waste of money for others,” said Hogeboom. “You should do some research and see what might be a good option for you. Owners of brand new trucks especially should look into it since they are liable for much higher amounts.”
Whether it is related to the health of the driver or the truck, a reliable warranty that covers important aspects of the purchase is worth a careful look. On brand new rigs an extended warranty may be a viable option considering the cost of new engines and the cost to repair them.
“Usually you have a window after you purchase a truck before you have to purchase an extended warranty, so I would suggest not to purchase the extended warranty right away and drive the truck around for a bit before,” noted Furman. “If you have some engine trouble you’d probably want to put on an extended warranty.”