SPECIAL - TRUCKS AND TRAILERS: Ponder the Purchase

Investing in a new truck is not a task to be taken lightly. The decision to go with a new or used vehicle via buying or leasing can have major impacts in the long term. Cash flow, necessity and intended use are all factors to consider before signing on the dotted line, so knowing your business is a good way to start.
     
Thirty-nine percent of contractors invested in a new truck in 2006 and 42 percent plan to invest in one in 2007, according to Lawn & Landscape research. But how do they do it and why? While nothing is guaranteed, most manufacturers agree that buying new equipment is the best way to go because of the wear and tear associated with the landscape industry. But being aware of all of the options can make the purchase of a truck a quick and easy, educated decision.

WHERE, OH WHERE. When a contractor chooses to invest in a truck he can certainly be influenced by region, says Bob Aquaro, vice president of product assurance, Mitsubishi Fuso Truck of America, Logan Township, N.J., particularly North vs. South. For contractors in warm, moderate climates, the buying season is year-round because landscape work never really stops. There can be a need for a new truck during the winter months just as easily as during spring months and, because of the year-round working season, cash flow is not as important an issue.
 
In Northern areas with a snowy season “it’s a whole different story,” Aquaro says. The bulk of the buying season is the first-quarter months of January, February and March. This is after most contractors have “survived” the winter months and are gearing up for the good working conditions of spring and summer, he explains. For landscape companies that offer snow removal services, a severe winter can increase cash flow, which can also influence a contractor’s purchasing decision.
 
Mike Cannon, business manager for Hill International Trucks, East Liverpool, Ohio, agrees that late winter and early spring are popular times of year for contractors to invest in new trucks. Contractors looking to customize their trucks should purchase even earlier to ensure that the vehicle is ready for the busy spring season. “We don’t stock many trucks with bodies because a lot of contractors want to customize them,” Cannon says. “It can take a month or longer for a contractor to choose which body and features they want and then have them installed on the truck.”
 
But sometimes purchasing of a truck is just as easily based on necessity. Eric White, owner of Acorn Building & Landscape, Bloomfield Hills, Mich., traded in a truck and plow this past December because his crews found the particular machine inconvenient to use. With a busy plow season coming up, White needed a truck his guys could operate and he needed it quick. “Other than this particular instance, the times we’ve purchased new trucks have been all over the map,” White says.

HOW TO BUY. When it comes down to making a purchase, manufacturers agree that most contractors choose to buy their trucks rather than lease them. The wear and tear accumulated through the years makes leasing a risky option, they say. “Our customers investing in work trucks only lease at around a 5- to 10-percent rate because of the wear and tear inherent with jobs such as landscaping,” says Brian Goebel, communications manager for Chevrolet, Detroit. 
 
White owns seven work trucks, all of which were financed through a local bank. “I’m just not a fan of leasing,” he says. “Trucks can last a long time if you maintain them properly, and after a few years, you have them paid off. It’s nice not to have to make that monthly payment, and if you lease, there will always be that payment to make.”
 
It’s difficult to find a downfall to financing, White says, particularly if interest rates are low. As a contractor with good credit, White was able to finance his trucks at around a 5.5 percent interest rate, and he was able to keep the money he would have spent had he purchased the truck outright. “I’d just as soon have the money I’d use to buy a truck outright to fall back on,” he says.
 
Another reason landscape contractors buy rather than lease trucks is because many try to keep their trucks in usable condition for as long as possible. It’s common for landscape trucks to be passed down from employee to employee and finally traded in after 10 or 12 years, Aquaro says, adding that the average truck lease lasts only three years. “Contractors tend to keep their trucks for a long time and get as many years of operation out of them as possible,” he says. “Most of the trade-ins we see are at least 10 years old, so leasing wouldn’t make much sense.”
 
Cannon agrees that leasing work trucks is rare because contractors like to get the most out of their vehicles. “We don’t have a lot of two- or three-year-old work trucks available on the lot,” he says. “Most of our used vehicles are at least eight or 10 years old.” Those who do lease are usually advised to do so by their accountants because it would be a better option for them tax-wise, Cannon adds. There are a few types of leases a contractor can choose from if he decides to go that route, and the best option is highly dependent on a contractor’s individual situation and personal preference, he says. (For more information, see “Leasing Logistics,” right).
 
White has only traded in one of his seven work trucks, and that was simply because the regular-sized cab was too small for his crew. Some of his trucks have up to 130,000 miles on them, but maintenance costs have not yet outweighed the luxury of owning the vehicles. “I definitely hold on to my trucks for as long as possible,” he says. “I plan on keeping them until they have more than 150,000 miles on them or when the time comes when they get too expensive to maintain. When a truck’s maintenance costs are equal to a monthly finance payment, that’s probably when I’ll trade it in.” White says that his monthly finance payments cost around $600, and if the cost of a truck’s repairs ran more than $4,000 in a season that’s when he’d think of trading it in.
 
MOST FOR THE MONEY. Most manufacturers agree that the trend of purchasing new vs. used vehicles is linked to company longevity. More established companies with steadier cash flow tend to opt for new vehicles, while younger companies more often go with used. “It can be a mixed bag, but most often established companies want new equipment, while the newer guys just starting out are looking for more affordable, used pieces,” Cannon says.
 
Aquaro agrees. “It’s the nature of the beast,” he says. “New companies are looking for the best deal, but the ones that have been around for awhile seem to want better quality.”
 
If a company can afford it, buying new is always a safer way to go, Cannon says. The biggest advantage of investing in a new vs. used vehicle is having access to a warranty, manufacturers say. An average new truck can come with a five-year, 150,000- to 175,000-mile warranty that certainly comes in handy should problems arise. The unpredictability of used vehicles can leave contractors with downtime in addition to costly repair bills. “As the truck gets older and things break, repair costs go up,” Aquaro says. “If there’s a problem and the truck is under a warranty, you’re hitting a home run.”
 
White has never purchased a used truck, and has taken advantage of warranties on many occasions. “If you buy a used truck you’re buying someone else’s problems,” White says. “Unless you have an intimate knowledge of who previously owned the vehicle, it’s best to buy new.”
 
There is no real way to tell when things will start to go wrong with a used truck, Aquaro says, and proper maintenance is the only way to prolong a vehicle’s life. “You’re going to reach a point where repairs are going to be more and more frequent and this depends on usage and preventive maintenance,” he says.
 
Generally, preventive maintenance for new and used vehicles is the same, Aquaro says. Oil and filter changes, tire rotations and basic repairs are important to keeping even the newest truck up and running. Unfortunately, some contractors don’t seem to understand the value of properly maintaining a truck, Aquaro says. “It’s a valuable piece of mechanical equipment,” he says. “It’s penny-wise and dollar-foolish not to take care of it.”
 
When he runs into problems, White takes his trucks to the dealership until the warranty expires and then works with a local mechanic he’s developed a relationship with over the years. By working closely with his mechanic, White is often able to have his trucks back in a day’s time. He also keeps an extra truck on hand in case one of his vehicles is in the shop for more than a few days. “It can be hard on business to have a truck pent up for more than a day,” he says.
COST COMPARISONS. When it comes to price, the difference between new and used trucks can be significant, and tends to increase even further based on region, Aquaro says. In the South and West where trucks are not exposed to harsh winter weather, a well-maintained, two- or three-year-old truck can cost from 70 to 75 percent of the price of its new truck equivalent. In the North and East where trucks are subjected to more wear and tear, the same truck can cost about 60 percent of the price of the same new truck. “Trucks exposed to severe weather conditions for a few years are not going to be in as good condition,” he says.
 
Some used trucks can cost even less than 60 or 70 percent of the value of their newer counterparts, Cannon says. A 2001 truck with a 12-foot dump can cost around $23,900 while the 2007 model with the same horsepower and specs can cost $49,000. “When it comes to pricing, a lot of it depends on the conditions of the trade-ins we receive,” he says.
 
Buying a truck can be a very personal experience so it’s best for a contractor to know his businesses before making any final decisions. As Goebel says, “Whether you’re a landscape, lawn care or even a dry wall company, the type of truck and how you buy it is going to depend on the company’s needs.”