Dollars & Sense
Straight Talk on Buying a Truck
As an expedite owner-operator, your income is generated by your truck. But when you consider that a new truck can cost anywhere from $150,000 to over $200,000, you're making a big investment with significant risks involved. So, how do you minimize your risks and make the best decision for your business and budget?
That was the thrust of the workshop on "Straight Talk on Buying a Truck," held on July 15 at Expedite Expo 2016 at the Lexington Center in Lexington, Ky. The session was moderated by Jeff Jones with Stoops Specialty Trucks and Wes Hearn with Middle Georgia Freightliner-Isuzu.
Jones and Hearn are both experts in spec'ing straight trucks for the expedited trucking industry. Here are four takeaways from their session.
1. Federal Excise Tax (FET) is becoming a hot-button issue.
The idea here is that any new truck with a gross vehicle weight rating (GVWR) above 33,000 lbs is subject to a 12 percent Federal Excise Tax (FET) on the cost of the completed truck at the time of purchase. That's a chunk of change when you're paying 12-percent on a $180,000 truck. One way expediters have traditionally gotten around the tax issue was to purchase the truck rated at or below 33,000 lbs GVW and then add a lift axle six months later -- after it's considered a used truck -- to boost the GVW (and payload capacity) without having to pay FET.
But both Hearn and Jones said that the federal government has recently begun clamping down on this "loophole," and expediters need to keep this in mind when purchasing their next truck.
"It's a hot topic because the Feds have gotten keen to the issue," said Hearn. "It's going on right now where a guy buys a truck and then adds an axle six months later. Are you subject to [FET]? In my mind, 'No, it's a used truck. It's got miles on it, right?' But the feds are saying, 'Write me that check. It's going to be interesting to see how it all plays out."
(Read: FET is Due.)
2. One solution to the FET issue is to make the truck lighter.
If you can make a 33,000 GVWR truck lighter, you can increase the truck's payload without having to add a lift axle -- and avoid the FET issue altogether.
Said Jones: "When I first became aware of [the FET issue] about 10 to 11 months ago, I decided to embark upon a way to solve the problem. And the obvious thing to do is to lighten the truck up. We set out to lighten up [a refrigerated] truck to haul a minimum of 5,000 pounds payload. So, we challenged our vendor team to take weight out of that truck. And we were able to take 2,200 lbs of weight out of that truck. In our world, that is a big, big deal."
Jones said that over 1,000 pounds of the weight savings alone was achieved by replacing the typical "sheet and post" van body with one built out of lightweight composite materials.
3. If you're new the industry, financing can be a challenge. So, get experience.
"For new owner-operators buying new trucks through traditional commercial lenders, it can be difficult because it's a custom truck," said Hearn. "That doesn't mean it can't happen, it's just that it's difficult. It typically requires experience. It typically requires money upfront and possibly a high interest rate."
Jones agreed and advised attendees to get experience in the business before making the investment in truck ownership. "We're here to sell trucks, so this is going to sound pretty stupid what I'm about to say to you. However, if you're brand new to the business... if you've never done this before ... if you're scared to death -- that 'I'm going to dump all this money and put my house on the line' -- keep in mind that [purchasing a truck] is a five year decision. If you're not prepared to stick it out for five years, my suggestion is just don't do it ... until you're ready. When you're ready is when we want to sell you a truck."
Jones said that the dealers that specialize in the expedite business have a vested interested in seeing their customers succeed.
"We've built our business on some of the most successful expediters you'll see here [at the Expo] today," said Jones. "And failure is not a very good option for anybody. If, for some reason, your business were to fail, and that truck comes back to the lender, that's like a black eye for Wes [Hearn] and me. We have a very low repo rate. We don't want that. That harms our credibility to the lenders, and our credibility with those lenders is extremely important."
So, how do you "get ready"?
"If you're not ready to buy a truck, there are a hundred fleet owners out there that will probably put you on the road today," said Jones. "Drive their truck. Give it a solid six months. Learn all the good stuff, all the fun stuff. And learn the bad stuff. That will give you the opportunity to learn the expedite business, learn what it's like to be out there. Then the clouds part, sun shines through, and you know exactly what you want."
4. Consider a used truck for lower price point.
If the cost of a new truck makes you squeamish, one option to consider is a used truck. Jones said that although good quality used trucks may be difficult to find in this market, one resource to consider is Expediter Services. "They'll buy a truck, run it for two to three years, and then they'll sell it to you. And they're constantly feeding new trucks into their fleet. It's a good opportunity to get started. You're going in at a much lower price point. And they offer financing to help you get started."
(Read: Selecting a Used Expediter Truck)
Save the Date: July 14-15, 2017
Mark your calendar to attend next year's show set for July 14th and 15th, 2017, at Lexington Center in Lexington, Ky.