Specs that Sell

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How things change. A little less than a year and half ago, even though a glut was forming in the used-truck market, the value of your trade-ins was still reasonably solid, even predictable. If you enjoyed a guaranteed residual, the finance companies weren’t moaning when you turned in your three-year-old vehicles. With demand for new trucks running high and deliveries out to a year and more, those used machines could still fetch a good dollar.

Not any more.

Used vehicles are almost literally a dime a dozen out there, and with new trucks in less demand, values are dropping dramatically. If you’re a buyer, that’s great, especially if you’re in the market for good, still-under-warranty, late-model heavy-duty aerodynamic tractors with long wheelbases and big sleepers. However, here’s the catch: most are fleet-spec’d vehicles, with few frills and smaller-horsepower diesels, and there’s little market for them, especially among owner-operators, who are frequent used-truck purchasers. Their preference is for high-horsepower, premium transmissions (13 and 18 speeds), and lots of chrome and accessories. Compounding matters, with their integral type sleeper design, the tractors aren’t easily adaptable to other vocational applications.

The glut of used trucks will continue, with no short-term relief in sight, forecasts specialized market research firm MacKay & Co. It estimates that with the number of 1997 trucks traded in last year by truckload carriers and lease/rental fleets (the two largest buyers of new class-8 trucks today), more than 270,000 used trucks entered the North American market. That’s 60,000 above the average 210,000 units the market can annually absorb.

This year, adding in the 1998 trades, used class-8s will grow to 300,000, an excess of 90,000 units, MacKay & Co. predicts. Factoring in the record build in 1999 and that year’s trades, some 310,000 used trucks are expected to enter the North American market in 2002, about 100,000 of which will be excess capacity.

Used-truck managers used to be able to predict a truck’s value a couple of months down the road, says Dan Sobic, Peterbilt’s assistant general manager. Then it became a week or two, and now it can change literally by the day. “There is no bottom,” he says. “Every day it’s eroding.” The loss of resale value can bring on a kind of sticker shock whether you’re big enough to deal directly with the truck manufacturer or small enough to walk into a dealer’s showroom looking to trade up. Either way, a salesman is going to have to screw up some serious courage before he tells you that you don’t actually have as much equity as you thought. Worse, he’s more likely than ever to tell you you’re “upside down,” owing more on the truck than the truck is worth.

It’s made a little easier because you’ll only have to wait 45 to 60 days for a new truck to be built, but if it also takes you a couple of months to shop and decide, you’re maybe four months away from the actual valuation moment. A lot can change in that time. A $10,000 reduction in the value of your trade between order and delivery of the new truck isn’t rare.

Whether you’re buying or selling, don’t expect used truck dealers to be as accommodating on truck deals as they may have been in the past. They’re in a real fix. Dealer profitability is down. Many have large surpluses of low-value and over-age inventory. Many are battling huge floorplan expenses.

Financing institutions are feeling the pinch, too. Faced with repossessions and defaults on loans, some are changing credit standards, making it difficult to borrow money.

So, you’ve got more reason than ever to think ahead. Neither you nor anyone else can predict what a given truck’s going to be worth three or four or five years from now, but you’ve got to give yourself every possible advantage. The present glut of used trucks, with depressed prices attached, may well still exist when you come to trade in a few years’ time. So unless you’re rolling in dough, the only sensible approach is to assume the worst case and spec your new trucks very deliberately indeed.

More particularly, you should be spec’ing now with tomorrow’s flexibility in mind. Like choosing an engine that can be re-rated up or down, for instance. The other key is creating a truck that will have the broadest possible appeal down the road. For instance, there’s strong demand for used heavy straight trucks, day cabs, small sleepers, single-axle tractors, or vocational trucks. Because they continue to be in short supply, values are holding rather well.

You’ll find a similar situation with used medium-duty trucks, as more of these trucks are needed to handle the increased movement of freight in small amounts.

There may be a natural inclination to pare everything down to the bone, buying just enough truck to get the job done at the least possible cost. Your accountant would love you. Or you can go the other way, spec’ing everything under the sun because it is, after all, a great way to attract and retain drivers.

Method No. 1 sounds smart on the face of it, but you can run into trouble. It may be easy in upfront costs and lease or finance payments, but how will its value hold up? How easy will it be to sell? How attractive will it be as a trade-in? You could easily end up spending more money on your next trucks than you need to, if only you’d spec’d with resale in mind at the outset.

Approach No. 2 is generally a much better bet, especially for small fleets and owner-operators, according to most used-truck experts we’ve talked to. The trick is designing a spec that will both serve you well and appeal to someone else when you’re done with it. And since the truck’s next buyer is quite likely to be an owner-operator who can’t quite afford new, at least not yet, he’ll want the big motor and the twin stacks and the big bunk-just like you and/or your drivers did. These days, the real challenge in spec’ing new trucks is figuring out how to avoid being too much upside down when it comes time to trade. It’s not a pleasant situation, and in extreme cases it could mean a company’s downfall.

As Dan Sobic says, if there’s just a $7000 gap between what you owe and what your present trucks are worth, the dealer can probably get creative and work out a solution. But if you’re upside down by $15,000 or more per truck, which is increasingly common, you may be out of luck.

The urge to buy less expensive trucks rather than filling the yard with $97,000 beauties is going to be strong, but look at the numbers. That plain $80,000 rig might fetch just $30,000 after three years while the $97,000 machine gets over $50,000. You spent extra money on a few key options-a big-block engine, a decent bunk, a 13-speed instead of a nine-speed and maybe aluminum wheels-but you gained in two ways: In dollar terms, you might even have made a little money on your extra investment, but you also had happier drivers.

Nowadays it’s a given that they want a more comfortable, stylish ride and that a desirable used truck is going to have a sizable sleeper, an engine pushing 500 hp, a multispeed gearbox, and an engine brake. Trouble is, there’s no shortage of them.

“The problem we have now in the marketplace is that we have a ton of big-power trucks with big sleepers in any town in North America,” says Terry Williams of Blue Book Values, publishers of Blue Book used-truck valuation guides.

Does that mean you should spec something different? Something even more glamorous and powerful? Probably not, but you should be aware that the definitions of things like “big power” are changing. Just in the last two years, says Williams, the acceptably “big” engine has become not a 400 but a 550, for example. The upcharge for a big-block Cummins ISX 500 compared to a small-block ISM 400 is in the range of $3000 to $5000.

A 400-horse diesel is now entry-level stuff, and 425- to 475-horse engines are common on the used market, notes Williams. So if you want your trucks to be worth the max when you wave good-bye to them, big power means at least a 500 or 550 these days. One way to get that horsepower spec without actually using it is to think in terms of uprating before you sell. Within given hardware “families,” most engines can be uprated with a simple software change, not a turbo switch or other mechanical modifications. Beware, however, that your drivelines had better be able to accommodate the bigger engines.

One combination to avoid, by all accounts, is nice big sleepers and “little” 11-litre engines. Note that 12-litre engines are for the most part valued the same as 14-litre models, horsepower for horsepower.

“You may gag on the price [of bigger engines],” says Sobic, “but in three or four years you’ll see it was the right choice.”

Go to a five-year-old trade and the difference between the stripper and a well equipped tractor can be huge. One dealer cites an example of two 1995-model trucks of the same make and model, both with biggish 60-inch sleepers, but one of them is now worth $12,000 and the other one’s at $30,000.

What’s the difference? The first one is kind of plain and it has an 11-litre engine, not a 14- or 15-litre, along with steel wheels, no engine brake, and no twin stacks.

Take the transmission choice alone. You’ll spend maybe $1300 more for a 13-speed compared to a 10, but at resale time your net gain will actually be something like $2000. Just add an engine brake and the value will jump by $1400 in three years, according to Blue Book’s Terry Williams. That represents a pretty good return on investment.

Some features will garner almost as much as their original cost, or even more, three years later, though 50% is a safer rule of thumb. Payment by payment, some of these important features added up front will actually cost virtually nothing over the life of the truck. Sobic says you can add $10,000 of extras up front for what will amount to maybe $100 or $125 a month over three years.

Given a choice between two otherwise identical used trucks, there are probably two clinchers for the average buyer. The first is simply its general appearance and cleanliness, the “creampuff” ideal we all have in our minds when we’re buying anything used; the second is the existence of a warranty, whether it’s left-over from the initial purchase or a special used-truck package.

The standard new-truck warranty is usually two years/unlimited mileage, with options to extend the warranty at point of purchase to five years and 500,000 miles (or more on certain drivetrain components). It’s worth noting that left-over warranty, though obviously desirable, won’t come with a value attached. The exceptions: aftermarket used-truck warranties and the one that comes with an overhauled engine.

To sum things up, there’s no doubt that resale value should be the No. 1 concern of most new truck buyers. It has a direct effect on cost per mile, even if it’s virtually impossible to predict any more.

That means spec’ing bigger and better major components, especially engines, transmissions and sleepers. Among the others we haven’t yet mentioned, air-ride suspension is important, worth about $4000 over non-air-ride in a three-year-old truck’s value.

Axle weights are pretty standard, at 12,000 pounds for fronts and 40,000 for drives, with popular rear-end ratios being 3.73 or 3.90. Engine brakes are definitely worth the investment, as are aerodynamic features like rooftop and chassis fairings, sliding fifth wheels, and aluminum disc wheels.

There’s one other factor to consider, namely the brand of truck you buy. Before you jump to conclusions, remember that reputations can be unique to a particular province or region and that these perceptions can change almost overnight.

That decision may have to come from the gut as much as from the numbers.

SIDEBAR: Extra Protection: Engine Warranties

Many truck builders have warranty and reconditioning programs designed to reduce the risks associated with buying a used truck. Engine manufacturers have similar plans for used engines. Here’s a quick roundup of programs available in Canada (in most cases, certain equipment age and mileage restrictions apply:

Caterpillar * Advantage Heavy-Duty. Four coverage periods available: 1-year/50,000 miles, 1-year/100,000 miles, 2-year/100,000, or 2-year/200,000 miles. Coverage on 23 major components. * Advantage Heavy-Duty Plus. As above, but with added coverage on additional components. * Advantage for Mid-Range Engines. For 3116, 3126, and 3208 engines. 1-year/25,000 miles, 1-year/50,000 miles, or 2-year/50,000 miles.

Cummins * Encore I. 1-year/100,000-mile coverage on major components and internal engine parts. * Encore II. 2-year/200,000-mile coverage on major components. * Encore III. Combines the two coverages into one.

Detroit Diesel * P3 Option 1. 6-month/50,000-mile or 1-year/100,000-mile warranty on major components and all internal engine parts. * P3 Option 2. 6-month/50,000-mile, 1-year/100,000-mile or 2-year/200,000-mile coverage on major components and all internal engine parts. * P3 Option 3. 1-year/100,000-mile coverage on major components.

Freightliner SelecTrucks * Select Limited Coverage. 6-month/50,000-mile to 2-year/200,000-mile warranty on internally lubricated parts on engines, transmissions and rear axles, plus manufacturing defects to cabs and frames. * FAVOR (Freightliner Administered Vehicle Operator Reassurance) Limited Coverage (for non-Freightliner trucks). 6-month/50,000-mile and 1-year/100,000-mile warranty on internally lubricated engine, transmission, and rear axle components. * Select Extra Coverage. 6-month/50,000-mile warranty on fuel injectors, turbochargers, A/C compressor, fuel and water pumps, and more.

Kenworth Elite Used Trucks * Gold. 2-year/200,000-mile engine warranty and 1-year/100,000-mile driveline coverage. * Silver. 1-year/100,000-mile warranty on the engine and driveline. * Bronze. 6-month/50,000-mile engine and driveline coverage.

Mack Three All-Star Protection Plans for 100,000 miles: * Engine Plan. Covers all moving parts except the water pump, gaskets, o-rings, seals, V-MAC sensors. * Transmission Plan. Covers everything but the seals, gaskets, o-rings, clutch assembly. * Rear Axle Plan. Covers everything except the seals and o-rings.

Peterbilt Red Oval Four Red Oval Pre-Owned Truck protection plans that begin with 1-year/100,000-mile coverage for engines, with no age or mileage restrictions: * Premium. Includes all internal engine parts. * Premium Plus. Includes all internal engine components plus the transmission and rear axles. * Ultra. Includes all internal engine parts plus the injectors, injector lines, turbocharger, air compressor. * Ultra Plus. Combines all three coverages into one package.

Sterling * Silver Shield Limited Coverage. 6-month/50,000-mile or 12-month/100,000-mile protection on engines, transmissions and rear axles. * Silver Shield Plus. Also covers turbochargers, injectors, water and fuel pumps, A/C compressors, charge-air coolers and more.

Volvo * Generation 2. Volvo introduced this used-engine warranty program for 12-litre engines on April 1. 2-year coverage on parts and labor. The warranty uses a per-visit nominal deductible compared to per-item deductibles.

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Rolf Lockwood is editor emeritus of Today's Trucking and a regular contributor to Trucknews.com.

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