When Should You Trade In Your Used Truck – Part One
Trading in your used truck is a pivotal time in your business that can be full of good luck or if you did not create a good business plan at the time you purchased the truck you may lose your business.
Note that the information in this blog is somewhat over simplified as there is always unique facts that come into play in deciding when to trade a used truck. However, I believe there are some basic templates to start with when making a decision when to trade in a used truck.
The most common template is when the truck was close to or just at 500K miles. This is due to the owner squeezing every drop out of the cost of warranty.
For example, a used truck purchase template starting at over 500K and often going over 1 million before trading is a matter of miles used + cost of ownership + finance structure.
If you bought a truck at these numbers and were going to put over 100K miles a year as an individual driver, then your term needed to be no longer than 36 months. Why? Because, as the truck depreciates with miles and wear at 500K miles starting out the majority of people looked to trade out at 1 to 2 years. This would have been doable at a 36 month or less financing term (with little or no equity) but, for most owners they would choose a 42 to 48 month term. Yes, the payment was less, but, they would have to chase the value and balance owed for the length of the term. That is at 200K to 400K on the truck the ability to reach an equity trade position at 2 years or less was impossible, unless a 20-30% down was given. In those days the $1,000.00 down craze put many good folks in a position to fail. At that point you had very little options to get off the truck. Get ready for $15K engine rebuild or more out of pocket and down time. What most people did, take the balance of what you had owing less what the trade was worth and add it to the next truck. It was no more than a bandage for those with too long a term. The majority never escaped adding and adding to the next truck until they lost it all.
The real back breaker to this became emotion driven. I can’t say this from a business level better than “A truck is only a tool, not a friend, not a favorite pet, not a collectror’s item or fine wine and not a family member. A truck depreciates, breaks down and continues to wear out”.
Sale price: Driver comfort and value at trade time are indeed valid parts of your business plan to consider. However they are very insignificant to the big picture of “The Cost of Ownership”. This is the time you make or break your business. Decisions on specification based on maximizing your business’ profitability are the keys to a successful business in the trucking industry. Maximizing fuel economy, charting the trucks route and looking for the best infrastructure with parts and serviceability on that route, as down time is truly the killer of your business, and proper preventative maintenance, along with many other decisions such as speed are unemotional good business concerns.
In my experience working with used truck buyers for over 20 years, the great majority who adhered to the above concerns have survived times like 2009 and overall have been very successful. Those who choose by emotional concerns rarely made it with their first truck.
I will continue on with some suggestions to consider about “When Should You Trade In Your Used Truck” in part two. Please check back.