SUDBURY, Ont. - To state the obvious, there is a cost to every truck and trailer - many owner/operators would be justified to think of themselves as subsidiaries of their respective financing companie...
DEAL?: Repossessed trucks can be a smart buy for some owner/operators, according to Dave Wiebes of National Repo Center.
John G. Smith
SUDBURY, Ont. – To state the obvious, there is a cost to every truck and trailer – many owner/operators would be justified to think of themselves as subsidiaries of their respective financing companies.
It’s a reality that becomes particularly apparent when times are tight, and keys need to be returned.
Without a doubt, repossessions represent a steady flow of business. John Hicks Bailiff Services actually launched its own sales company (Sudbury, Ontario’s National Repo Center) to handle the volume of heavy equipment that it was seizing. Ten years later, it’s serving an array of banks, leasing companies and other lending institutions.
Last year, that work involved repossessing about 100 heavy trucks, although it has been asked to collect the keys of as many as 200 trucks in a given year.
A strong economy
A strong economy can take some of the credit for a recent drop in seizures, offers Dave Wiebes of the National Repo Center. Owner/operators are able to make their payments when money is flowing in, after all.
But he also suggests that spikes in the number of repossessions that occurred a few years ago were linked to overly “creative” financing efforts that have since been abandoned.
“The finance companies have tightened up,” he says, noting that lenders now place a greater emphasis on the need to demonstrate a sound track record in the trucking industry. “Not as many people are being financed with no money down.”
While commercial trucks were never officially offered with a “zero down” option similar to those seen on new car lots, creative bills of sale created the next best thing. Those selling the trucks would boost the value of the purchase – perhaps by $10,000 – just so they could tell financing companies that the buyer could make a $10,000 deposit. But the money never actually changed hands.
The practice was particularly common in the late ’90s, when the race for market share was king.
In recent years, many smaller financing companies have also abandoned the trucking industry altogether, Wiebes adds, suggesting that today’s firms have a better understanding of the realities of the business.
Why it happens today
Creative financing aside, there can also be other forces at play behind the need to repossess a vehicle.The first wave of seizures typically occurs in the first year after a truck is purchased, when some drivers discover that they don’t have the business acumen to be owner/operators.
“A good driver is not necessarily a good business person. There’s a big learning curve, Wiebes says. “They have to take out their calculators and streamline the operation.”
Indeed, business plans often need to evolve to meet the needs of a changing business environment.
Cross-border drivers who purchased trucks in 2003 may have been caught thinking that they could earn some profits through large differences in the Canada-U.S. exchange rate, says Tom Wallis of Elite Bailiff in Langley, B.C. But an 87-cent dollar put an end to that. “A lot of those guys were operating on a false economy, in a sense.”
While the industry as a whole has been living with high diesel prices, those who based their business plans on pre-2004 fuel economy calculations have also taken a particular financial hit, Wiebes suggests.
“There are some people in new trucks that are a little disillusioned with the (post-2004) engines.”
Expectations of seven or eight miles per gallon dropped significantly because of the impact of new components that were designed to cut emissions.
“There’s nothing left,” John Hicks says. “All your profit has gone to fuel…we’ve had guys turn 2005 (models) in with 40,000 km on it.”
The lost fuel economy is a particular challenge to single-truck owner/operators who have been unable to establish fuel surcharges, he adds, suggesting that larger fleets tend to be isolated from the problem. “If you have one truck and say ‘I need a fuel surcharge,’ they just tell you to take it in the hat.”
The next round of repossessions tends to occur when trucks turn three or four years old, when the first maintenance bills begin to accumulate on top of remaining truck payments.
Inexperienced and cash-rich owner/operators have been known to go on spending sprees, without banking the money that they’ll need for this work. But the cash becomes a little more relevant to the business when they need to replace a $5,000 damaged differential or a $10,000 transmission.
Ultimately, business can also evaporate because of larger economic forces. Consider the softwood lumber dispute – and its related tariffs – that has forced many lumber mills into bankruptcy, and led to a surge in the repossessions of related equipment.
The value remains
But buyers are able to find good values in the seized trucks – particularly since they tend to include late-model vehicles that meet most fleet standards, and often include warranty coverage.
Wiebes balks at suggestions that repossessed trucks will be in rough shape because of a lack of funds for maintenance. “Sometimes stuff like the tires, they don’t have the newer ones like it should. But generally people are proud of what they have,” he says.
Perhaps it’s the same reason that Wallis suggests that trucks with owner/operator spec’s – complete with extra investments in trim packages – tend to remain in the hands of their original buyers. It’s a matter of pride.
“The trucks go through the scales every day. You aren’t just going to run up and down the road, or the green and whites (Ontario Ministry of Transportation cruisers) are going to get you,” Hicks adds, referring to the ongoing pressure to ensure vehicles will pass roadside inspections. And many owner/operators are often in a state of denial right until the day they’re asked to hand over the keys, and continue to maintain the truck, Hicks says.
In selected cases, some of these same drivers will return to buy another truck, learning from any mistakes of the past. But Hicks suggests more and more of them opt for grabbing a lunch pail, and working for a fleet.
“They love what they do, but the management part of it is not there,” he says.