Unlike light-duty trucks, which present only a handful of options (such as a two-wheel or four-wheel-drive, additional trim levels, and different bed configurations) that affect potential resale, medium-duty trucks are substantially more complex, with dozens of options to sort through that can impact resale values as much as several thousand dollars per unit.
And as fleets continue to shortcycle their medium-duty trucks, resale value becomes an especially important consideration at the time of vehicle purchase, because a higher sale price in the secondary market means lower depreciation costs — and, consequently, lower total cost of ownership.
So, what should fleet managers consider in their medium-duty truck specs to enhance resale value when the truck is taken out of service?
Keeping Resale in Balance
“The goal that many fleets are trying to achieve is a balance of depreciation, maintenance expense, and the useful life of the upfit or ‘tools,’" said Joe Korn, senior strategic consulting analyst for ARI, a full-service fleet management firm. “It’s the synergy of all these areas that makes a fleet ‘best in class’ and will provide the optimal resale value and overall lowest lifecycle cost.”
Achieving the highest possible resale value also hinges on determining the best replacement cycle for the truck and its application, Korn advised.
“Even trucks built to achieve optimal performance with all the right components from a resale perspective can experience lower-than-expected residuals if the vehicles are kept well past their intended lifecycle,” Korn said. “I could have the best truck in the world, spec it with all the right pieces, but, if I keep it in service too long, the market becomes so washed down that it doesn’t really matter. You’re not going to get that much for the truck. It all matters how long I should keep it and how well I use it.”
1 SPEC’ING WITH RESALE IN MIND
For fleets that run their medium-duties until the “wheels fall off,” resale may not be the highest priority at the time of vehicle purchase. But, for those that intend to replace their trucks every five to seven years or sooner, here are some specification ideas to maximize the truck’s future value:
Most Class 4-7 trucks offer only a diesel engine; however, a few models, such as the Ford F-650/F-750 and the Isuzu N-Series, present a gasoline option, designed for low annual mileage applications, with an up-front price savings of about $7,000 to $10,000. So, which engine type performs better from a resale perspective?
“Spec a diesel over a gasoline engine whenever possible and practical,” said Steve Jansen, manager, fleet services and regulatory compliance at Donlen, a full-service fleet management company based in Northbrook, Ill., and wholly owned subsidiary of The Hertz Corporation.
In Class 6-7 trucks, there can be as many as a dozen horsepower/torque ratings to choose from, with a higher up-front price tag (as much as several hundred dollars) the higher the rating. What should fleet managers consider for resale purposes?
Jansen recommended selecting diesel engines with over 230 hp, because the higher ratings can be used for a wider range of applications, expanding the potential pool of customers on the secondary market.
But when choosing horsepower, keep it in perspective, advised Korn.
“You don’t want to put parts in there that are overkill, such as a higher displacement or horsepower engine, just to say that you think you may get a better residual at the end, because you could be spending much more on fuel than you really need. You may get 5-percent more on the residual but will have spent 20-percent more on fuel,” he said.
The key is determining the horsepower/torque “sweet spot” where the truck offers sufficient power for its initial duty cycle while increasing possibilities for future resale, without paying too much up front.
Although a manual transmission offers a substantial cost savings initially, that initial price advantage over an automatic transmission will likely be wiped out at the time of resale, Korn observed.
“Since there are fewer qualified drivers today capable of driving a manual transmission than in the past, automatic transmissions are required for most companies when selecting a vehicle, which makes automatics more desirable from a resale perspective,” Korn said.
Also, when it comes to transmission specifications, remember to include the power take-off (PTO) provision, which is used to provide engine power to truck-mounted equipment, such as cranes, hydraulic hoists used to lift dump bodies, and air compressors.
Even if there’s no need for a PTO for the truck’s initial use, the availability of the PTO provision will make the truck more attractive on the secondary market because it saves the future owner from having to pay to add the provision after the fact.
The PTO is a low-cost option that can reap dividends down the road.
“How a vehicle is upfitted should be based on the exact needs of the client and its operators to ensure efficient use. However, there are often many similarities between certain types of upfits that may not actually impact the resale of a vehicle. It’s the custom one-off types of upfit that will negatively impact what the vehicle is worth when it comes time to sell it,” Korn said.
Jansen concurred. “The biggest challenge is creating a vehicle that is so specialized that there is little or no interest in the secondary market,” Jansen said. “Keeping the upfit as generic as possible while still spec’ing for the first buyer’s needs can increase the pool of prospective buyers on the back-end who do not want to spend a lot of money having to reconfigure and redesign the upfit on the used vehicle.”
5 COLOR CHOICE
“Typically, white is the common color of most fleet vehicles and allows for versatility when trying to remarket a unit,” Korn said. Some fleets, however, prefer to have their vehicles “stand out” and may have elaborate paint schemes or unusual colors. While this may be important in meeting a corporate image or marketing campaign, these units require additional expense to be “de-identified,” further chipping away at a net sale return. Other colors that are not standard can also negatively impact the initial sale price of a unit.
6 ALT-FUEL TECHNOLOGIES
How do alt-fuel technologies perform in terms of resale?
“Although there is a growing trend in the use of alternative-fuel vehicles, such as compressed natural gas (CNG) and propane autogas, the future of how these vehicles will perform in the wholesale market is still to be determined,” Korn said.
“These types of vehicles operate within a very narrow market when it comes to resale, especially if they operate on a dedicated fuel. Some bi-fuel applications may achieve higher residuals than a dedicated system, but often will be lower than a conventionally fueled vehicle because of space restrictions such as tank locations. In many dedicated alt-fuel systems, however, the lower cost of fuel over the life of the vehicle can provide significant savings even with a lower residual value,” added Korn.
Seeking Feedback from Suppliers
How can fleet managers ensure medium-duty truck specs strike the right balance between resale considerations with other factors that impact a truck’s lifecycle cost, such as vehicle performance, initial purchase price, fuel economy, and maintenance expenses?
One idea is to work closely with supplier partners (such as the chassis manufacturer, upfitter, and fleet management company) that can offer valuable advice and feedback on writing vehicle specifications that fit the application and budget, while also enhancing resale prospects.
Truck manufacturer reps, for example, know their “best sellers” for specific industries and can give insight into specs, such as determining what diesel horsepower ratings offer the widest “sweet spot” for the secondary market and are still suitable for the truck’s initial job description.
Many upfitters are not only experts on designing equipment for optimal value and resale in particular industries, but they’re also a source of potential leads when that truck is ready to be sold on the secondary market, offering the fleet essentially a “retail outlet” to garner the highest possible sale price on the back-end.
Fleets that use a full-service fleet management company can tap into that firm’s remarketing specialists for advice on which medium-duty truck options offer the greatest value on the secondary market, depending on the truck’s application and intended lifecycle.
The Bottom Line
When it comes to spec’ing medium duties for maximum resale, keep the big picture in mind, Korn advised.
“While resale is a very important part of the lifecycle, the most important part of the lifecycle for any type of truck, especially medium-duty applications, is building the right truck for the intended job function,” Korn said.
“Trucks are ultimately tools of the intended trade; the chassis is there merely to provide mobility. When trucks are built to perform their best, specifically in the areas of reliability, fuel economy, and driving experience, there will always be a demand and a market to sell these trucks in,” added Korn.
Originally posted on Work Truck Online