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Avoiding Upside Down Heavy Truck Deals |
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Heavy Truck Dealers often use 0 OR LOW DOWN truck finance deals with low payments as an INCENTIVE to help you to make a poor heavy truck purchase decision.Finance buzz phrases like 0 down or low payments (typically a balloon or a long string of payments) are one way truck dealers make a dog on their lot more attractive to the prospective buyer. All too often these dogs turn into a skunk attached to truckers finances.! Quick truck equity is Key to many of the most successful truck operators. Low downs or a long string of low payments typically wont get them in the equity position they need for long term success. In these type of deals, often the truck wears out long before it is paid for... which turns into a financial disaster. How many of the most Successful truck owners got there:
I believe that mostly it's the deal you choose when you buy the equipment that drives future cash flow, operational profit and subsequent equipment gains or losses. The purchase price of a typical new HD truck is in the range of $90,000-120,000 and the ranges of prices between various makes and models with similar COMPONENTS is about $10,000. Now, if a great truck is $10,000 higher, remember that this difference is prorated over the finance period. The more expensive truck may have a payment $200 higher ...but, chances are it could be worth $20,000, and up, more than the less expensive choice a few years later and have people standing in line to buy it. The rule of thumb for years has been that a moderately utilized hd truck will produce about $100,000 in expenses each year or $300,000-500,000 over a 3-5 year period. Expenses are just that, expenses ...Something successful business people must manage. With valuable equipment, often the equipment specification and perceived value have a direct effect on the larger expense. It is arguable and often proved true that a $10,000 higher initial investment can lower overall expenses, and increase revenue. Such buyers often see LOWERED future variable costs:
INCREASED
What truck would you purchase?Is the truck or equipment a make and model buyers are paying premiums for in the used marketplace today? Are the components and gearing right for your job? What kind of terms did you commit to when you signed the truck finance papers?In 24 months(for used equipment 36 months for new) what is the typical auction or wholesale value for equipment like this? To calculate a realistic* liquid value in 24 months, use 70% of the average retail asking price of a truck like (make, model, engine, trans) the one you are contemplating buying... only 2 model years older? So, if a truck 2 years older with about 250,000 more miles seems to be selling for about $50,000, chances are it is selling at dealer only auctions for about $35,000... maybe a little more. You will then want to owe less than $35,000 in two years time to have any shot at all of trading for a new or newer truck.
*it is impossible to predict all the variables that may happen in the future that could cause truck values to go up or down... this guide is a reasonable rule of thumb.
For the longest time: Two or more time a week I fielded this question from long haul and regional truckers... "What can I do? I bought this truck 2 years ago with a zero down, it has 600,000 miles and always breaking down, I still owe $29,000, they tell me it is only worth $14,000. I can't make the payments, feed my kids and fix it too... down time prevents me from hauling the loads I need while shop expenses take money I don't have." There are not many good options. Generally, the one that makes the most sense is to look for a haul carrying light loads. That will drop your maintenance, tire and fuel costs. Then, try to hold on until you can either sell or trade the truck. The assumption is that no buyers will pay you more than the truck is worth. Couda-Shouda Amortization Schedules and Truck ownership Next time, Look at an amortization schedule before the buying decision is made and the finance contract is signed. An amortization schedule shows how much is owed after each payment. In general with used trucks it is not a good idea to owe more than they are worth after two years. Again, a simple check of the truck paper for a truck like the truck considered but 2 years older will show the possible retail price of the truck in two years. Multiply the projected retail price times .75 to get a rough idea of the wholesale value. If the wholesale value is less than the 24 month payoff amount ...you really should look very carefully at your options. The used truck models that tend to hold relative value: Kenworth W900L and the Pete 379 ...nearly every dealer that sells used trucks can sell these two models. A distant 3rd though 5th place... Volvo 770, Freightliner Classic and Kenworth T600 AeroCab. . Note that I am calling a T600 the top re-selling aerodynamic truck. I am not so sure that this is still true but I am sure that the T600 is better proven as a lower maintenance cost Aerodynamic truck that also carries a premium reputation than any of the "newer" aerodynamic models out there ...including the 770. Worth considering - O/O spec'ed Western Star ...note; you will probably need to go back to the WS dealer to get decent trade value with this choice. It has developed a reputation as a good O/O truck. But, the value of the truck dropped big time when Freightliner bought the company. Not many truckers have much respect for Freightliner. This is mostly because truckers correctly blame Freightliner for market share greed throughout the 90's and the used truck crash that came from it. Most of the remaining truck models simply do not do well on the resale value market. IF you have made the error Look for companies who haul short/regional and with light loads. Heavy loads are usually a kiss of death to a well worn truck. Be sure to drive, grease and care for the truck very very carefully. GOOD LUCK!
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