Episode 029: Our Thoughts on Used vs New Vehicles For Your Fleet

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All right. Welcome back for another episode of the Fleet Success Show. Glad to have you guys with us listening again. Joining me today, we have Steve Saltzgiver.

I'm back.

Welcome back. And Jeff Jenkins.

Steve, nothing makes my day more than seeing you across from me here in this room recording a podcast.

You could have been in Washington, D.C. where I was at.

No, there's way too much mud there for me.

You know, I realize I introduce you guys every time and I never say my name.

Who are you?

Hopefully everybody knows who I am. My name is Josh Turley.

Oh, so it's good to meet you.

Welcome back.

All right.

So today we're, we're talking about used versus new and what spurred this. You know, we talked a little bit about this in our TCO versus procurement episode about buying new versus buying used advantages, disadvantages. But the question came up on the NAFHA community boards from my friend Wayne over there at Harding University. And I thought it was a good question. There's generated quite a bit of response. And so we kind of wanted to dissect it. Look at some of the responses, talk about some of the advantages, pitfalls, and different things that you could do to help mitigate issues if you have to go buy a used car right now, ways to kind of get around that. So I think the first question, right, let's just repeat Wayne's question for the audience. But do you think it makes sense to look at used vehicles to replace the more costly vehicles in your fleet as a short-term solution? A little bit of context, obviously everybody right now, we're dealing with supplier shortages. There's a major shortage of new vehicles on the market because of the chip shortage. And so it's very difficult to go find replacement vehicles. And so you're having to carry vehicles longer. If you can't go get new vehicles and you have to replace a vehicle, are used cars an option? And I think that's what Wayne is trying to ask here is, is it more costly? Is there dangers? Like, why wouldn't I do this? So I'll put that to you two, you know, reasons why we shouldn't buy used cars or how used cars could be a, you know, a boon to a fleet that's struggling with replacement right now.

I was just thinking about the word we try not to use called unprecedented times, but the fact is we are in unprecedented times, and particularly when it comes to the supply chain problems we're having here.

You get a pass for that one because it's supply chain unprecedented and not just COVID.

Yeah, but you know, I've talked to several fleet managers because that's kind of what I do as a product manager for our company. And I mean, this is a disaster what's going on right now. I've talked to a lot of— I would never have recommended cannibalizing an old vehicle to fix a new one, but now, I mean, you may be faced with that, you know. So if you you know, you may have to actually strip down your old fleet to take care of your new fleet. So—

Well, heck, we heard from a client just a few weeks ago, they were thinking about, well, maybe I have to go buy a new vehicle just so I have parts for the new vehicles.

Yeah. How bad is it?

They were gonna have to cannibalize a brand new truck because they couldn't find the supplies for their existing trucks.

Yeah, it's horrible. And so under normal circumstances, I've done the analysis, I would never recommend buying a used vehicle. I have bought used vehicles in the past. It was more of a quick turnaround need than it was anything else. I had to have one for a particular, you know, application or vocation inside of our operation. But I mean, the dangers about buying used vehicles is, you know, you get something that might not be standard with your fleet, things like that.

But it's much more difficult to buy a batch of used vehicles, right? You're going to get a lot more one-offs.

Right. You're going to get what they have on the lot, right? Or you're going to get what somebody else is selling you, or what's an auction.

And it might be similar, but there's going to be differences in configuration, right?

I mean, if you're looking for a specific color, you may have an issue. If you're like an all-white fleet, they may be short on those. I mean, there's some issues. Although, to preface all that, I think anything goes now. I mean, right now with— with— I mean, you got to do whatever you have to do to take care of your customers and at this point in time.

I think one of the things I would caution against from, you know, like saying, hey, let's use used cars to fix our replacement program right now, is that because there's a shortage of new vehicles, there's also a shortage of used inventory, which is driving resale values through the roof. So if you have excess fleet, right now is a terrific time to right-size your fleet. Yes, it's a terrible time to upsize your fleet and to add more vehicles to it.

That's exactly right. I mean, I was looking at the book values on, I bought a 2020 Ram and what I paid for it, I can get more for it now a year later.

Yeah.

You know, I mean, I actually considered selling it.

You're seeing, you know, on MSRP, you know, for a $50,000, $60,000 truck, they're $10,000 to $15,000 higher for a used vehicle than they were for the MSRP coming off the lot. 2 or 3 years ago.

Yeah, so I'm with you. I think the best thing you can do at this point is start looking for opportunities to right-size your fleet, look for other alternative modes of transportation that people might be able to get by with and use during this time period.

So outside of this time period?

Right. Thinking about it from a normal perspective, would used vehicles ever be, you know, something that you'd have an appetite for? You know, my philosophy obviously comes more from a private side, which is absolutely, if you can eliminate— the number one cost of any vehicle is depreciation, right? It's the acquisition of that vehicle and then losing the value of that vehicle over the first 2 or 3 years, which naturally is also what the warranty term covers typically. But if you could avoid or minimize or lower that hit, you know, when we look at like a lifecycle cost analysis, the amount of time it takes for the maintenance cost to catch up to the depreciation cost is significant. And if you could cut that right off the gate, it's going to be a long time before the maintenance cost ever gets close to what you would have paid in the depreciation for years 1 and 2. And so from a math standpoint, I say this makes sense on paper, um, as long as those resale prices are what they are and the depreciation you know, is— comes down as quickly as they go up.

Where it could become an issue is indirect costs, right? I mean, if it's— depends on the year of the used vehicle, but I mean, if it's new enough, might not be an issue. But if you bought one 3, 4 years old or something, then you may have more downtime or you may have more maintenance time or things like that. So I mean, you have to look at all those. I think that's where people look at it or don't include the indirect time that's associated with it.

Well, and the cost of downtime, you know, the cost of not having a truck on the road, not having a police vehicle, having to have a spare fleet, you know, an increased fleet, spare fleet size.

But I think you're right on paper. Absolutely.

Yeah. But you also like have to consider other things. What's your budget, right? You need 20 vehicles and you got budget for 10 new ones. So, well, I need 20. So what do I do? I go out and look at used. Obviously, the condition, who owned them before, that's a huge deal. Yeah, it's something to consider. Don't go buy a bulk from, you know, ex-Mormon missionary cars, because as an ex-Mormon missionary, I'll tell you, I'd abuse the hell out of those things. So like, there's a lot of different things you have to go into. And I will also preface and say that, you know, regular work trucks or cars, police cruisers, whatever, is a totally different ball game than if you're going to go heavy duty, if you're going to go with big trucks.

Right.

Because you do not want to go out and buy a 3-year-old used truck. It's going to have a totally different set of issues than a passenger vehicle or a work truck or something like that.

Right. And at a university, you might be doing things like transit buses and things of that nature, fixed route. Used market's probably not as big for things like that. But there is oxygen. I said it again.

You did. It's auction.

It's auction, not oxygen.

When you say auction, it takes the oxygen out of our room here.

It's terrible.

Well, they do have those specialty auctions for the transit vehicles or whatever else. But it's going to be in the same line, I think, as heavy duty because you've got more components. It's obviously a heavier payload that it's always managing. So the abuse, there's a lot more of that because those typically run more often.

They're work trucks. I mean, that's the whole point of them. I mean, they work, they're always running at pretty high RPMs. And, you know, and typically a truck like that would be— its life is about diminished at 3 years.

Well, and if you're replacing them every 3 years, then you would never want to go buy a 3-year-old truck. Yeah, but you could go buy a 1-year-old truck and maybe run it for 4 years and see if what the cost of that maintenance is in year 4 versus the acquisition year 1.

Well, that's the thing you got to consider too. If you have to, through this, these unprecedented times, do exactly that, buy used vehicles. How is that going to impact your long-term replacement schedule?

Right.

Down the road, because, you know, instead of replacing it in 7 years, now you got a, one would say, a 1 or 2 year life on it. And now it moves that up in the future years.

Right. Maybe now you only have a 5-year life instead of a 7-year life.

So you're going to have to readjust all that.

Yeah. Other things to look at is when there's new regulations or components in a vehicle, because Generation 1 most likely are going to have a whole hell of a lot of issues that you're going to have to deal with. Back when the DEF systems came out back in 2010, when all those, uh, regulations came out, you would have to realize that, you know, really through 2010 through 2014, so the first 4 years, they were terrible. They were pieces of junk, always had regen issues. And so you wouldn't want to go back and buy used vehicles that are in those first generation models because you're more likely to have those issues that are going to be a hell of a lot more costly I think that actually applies to any first generation car, truck, any, any first time they do a year, make, model change.

You know, like the F-150, I know when they were rolling through those, every first year is almost always like, wait one more year to get the second model year of that year. The, uh, when the Super Duties came out and they switched the powertrain, yeah, from what, the 7.3 down to a 6.0, and they went to a different turbo setup, like those had a lot of problems initially.

Well, Ford didn't make that engine.

Right.

They were depending on International to do it.

And it caused a lot of problems.

That's the problem.

You know, that first, those first couple years, they got it figured out and it's now a good powertrain. But, you know, the idea is that that first year is usually a little bit of a risk anyway. So if you're going to buy used, try to avoid those. I like looking for ones that have warranty on them still. That's one of the greatest benefits of buying a new vehicle in the first place is that it comes with warranty. And so if you can find a used vehicle that has warranty on it, that's definitely still worth something. And if you can get an extended warranty on it, you're probably going to get an extended warranty cheaper than you would have gotten the car in the first place. So you should be able to—

and that extended warranty on a used vehicle could offset or be less than that first year of depreciation. So you got to do that analysis on that.

You have to do the analysis. Don't just do it. Do the analysis and figure it out. I know one of the, one of the things to be careful of is when you buy used cars, you're buying used problems. You know, they're other people's cars, there were other people's problems. You mentioned the trucks, you know, being run heavily, but even in passenger cars and light-duty trucks, you're gonna have that same issue. And so make sure that you're doing your due diligence there as well, is that you have, you know, your technicians inspecting them, or at least they're certified and they come with, you know, some warranty that you can go find issues. You know, the same way you would inspect a vehicle coming from a dealer or from when you buy it new, which you should be doing, and when you receive that vehicle you should be doing an inspection on it. You want to make sure you're even more thorough with a used vehicle if you're going to go down that road.

You know, that's a good point. I mean, if you already have a partnership with, say, your local Ford dealer and that's where you're getting your new ones from, you probably ought to try and buy your used from there as well, because that partnership will go a long way.

The relationship will definitely help.

Yeah, if you get into a problem with a used vehicle and you need you know, they sold you, you know, a lemon or something. I mean, to keep your business in the future, they'll work with you a lot better than if you bought it from Steve's Auto on— right, it's in the middle of nowhere, right?

Right. Try to leverage existing relationships because they will come back and they'll— you know, you've got capital built into that.

That's right.

So, um, you know, one of the things that was recommended was this idea of going out and getting a dealership license. And using that as a way to, you know, help source vehicles. You know, Jeff, you mentioned that you guys had done this before. Advantage to doing it? What does it help with?

Well, there's a couple different things. So in trucking, we went out and did it for being able to sell our used trucks to different people because we didn't want to trade them in. You know, there's more value in doing your own sales, and you can only do 5 vehicles a year in Texas. Without having a dealer's license. So we went out and get it, and there's a lot of benefits to it, and it's not very expensive. At least it wasn't in Texas. It's actually relatively cheap. It's really the red tape and the time it takes to go through the governmental processes to get it done. But what it does, it also allows you to go to auctions. You can go to Fleet Auctions and you can buy in bulk. Now, you have to have a dealer's license to go there and do that. If you don't have one, you can find someone that has one, you can take them with you, but usually there's a fee associated with those people as well come with you and go through these auctions. So I would suggest that if you're really looking to go down that used roadmap, you know, there are companies that go out of business or go bankrupt, or, you know, they just have a whole bunch of inventory they want to offload, and the best way for them to do it is just go to an auction.

Yeah, one— so David, David Barr from Modesto on the NAPA board recommended doing that because they have an agreement. They actually go to like Enterprise Fleet and they can get some of their gently used rental vehicles, you know, vehicles that are coming off lease you know, and be able to go out and do those because of their dealership license. And it's a fairly easy process. It's inexpensive. It's just time-consuming. Yes. It takes a little while to get set up. And I think I saw some things in there about being compliant. The DMV will come audit you as a dealer. So you got to make sure you have your dealership license publicly displayed in a prominent place and all of that.

You know, in buying something that comes off lease, chances are it was fairly well taken care of because there's a residual at the end you got to pay or a penalty.

Right.

You know, and probably you can, if you were to ask them, you could probably get the maintenance records even from someone like Enterprise, which would go a long ways if you're trying to put that on your program.

And that would help too, from a peace of mind perspective, right? To know what the maintenance was. Well, you know, if it was a part of the Enterprise fleet, it's been maintained because they have customers depending on their vehicles versus a privately owned vehicle, which, you know, the records could be—

I would say enterprise leased fleet, not Daily.

Not the rental fleet.

Rental fleet. Yeah, they're like the missionary cars.

That's right, exact same thing. Just get the insurance.

All right, well, uh, any other, any other thoughts, you guys, on the, the use of used cars and whether or not people should avoid it, or is it something they should use as a kind of an outside-the-box idea to get through these crazy, crazy supply chain times that we're in right now?

I think right now you just, you really don't have any choice. If that's all you, that's the only way you can get your fleet updated and modernized. I think probably my bottom line would be just, just do the analysis up front.

Yeah.

You know, take a look at it and, you know, cost it out over a couple of years and make some really good projections so that you can Once the things turn around and change, you're not throwing your fleet off, you know, by doing some one-off here.

I think if this time has shown us anything, it's that the people who are hurting most right now are the ones whose replacement programs were in shambles before. If you had been doing really well with your replacement program, you're probably okay. You've got some oxygen canisters stored up, you know, and you're gonna be able to get through the next while until the supply chain restores. And we know it's coming back. The automakers are already looking at how they can reduce their dependency on the chip supply makers. They're putting pressure on the chip supply makers to, you know, get them more chips. As soon as we can get, you know, containers off the darn ocean, things might really open up here.

But there was only 103 out there at the, you know, in Southern California this morning. So not too many.

At what point does the National Guard roll in and just take over the operation?

Hey, but they're going 24/7 and that's going to solve all the problems.

You still have the issue with the owner-operators.

Heaviest of eye rolls.

They still don't have enough trucks to go to the ports. Yeah. But I think, you know, you hit it on the head there. If you've been doing a diligent job taking care of your fleet, I mean, you've always got that trough down at the bottom where you got 1 to 2, 3 years where you could, if you had to, you could push one for a year.

You could make do, right?

You could make it do until you get the supply chain thing sorted out. But If you've got a fleet of, you know, 10 to 12-year-old vehicles and they're sedans—

What a great motivation to get your replacement program back on track after this.

Exactly.

Right? And what a great argument to make to your superiors, like, "Yeah, you remember that time we couldn't get any new vehicles? Let's not get into that situation again." Exactly. You know, budget issues will always be budget issues, but now at least there's a little bit more ammo in your quiver.

Yeah, my opinion on this whole talk is I would hold off. I would not buy used. I'd wait for the new market to come back around just because of the shortage and the fact that you are going to pay a premium right now.

Wait.

And I do not think that you're going to offset that cost at all.

No, the premium wipes out any benefit right now. So I would— unless you're— it's like drinking salt water. That's probably my best analogy to it right now, is if you do it, it's a little bit like drinking salt water. It's just going to make you more dehydrated later. So just be very careful about it. Inspect those vehicles like crazy, but know you're paying a premium and you're not going to get any cost savings by doing it. It's more of like you're doing it out of necessity.

Well, and you're not rightsizing your fleet either. You're not upgrading the age of it.

Yeah.

So what's going to happen is cars are going to come available again and then you just spend all this money for used equipment and then you have to spend a whole bunch more money for new.

Well, I think that's why it's important that you do the rightsizing exercise to find out, are there vehicles that are underutilized? Are there vehicles that you don't even need that could be repurposed? Could you have people taking Uber and rideshare and other methods of transportation instead of providing them a company vehicle?

All of those things you should be looking at. Yeah, exactly. With vehicles, you could put them on contracts or mileage reimbursement or things like that.

All things that are cheaper in the short term than going out and buying used vehicles. So, okay, well, that's going to do it for this episode. As a reminder, the Fleet Success Summit is going live. We're going to be hosting that here in Mesa, Arizona, Phoenix area, April 20th and 21st. You can go to fleetsuccesssummit.com to go get more details from that and sign up to be kept in the loop. We'll be making speaker announcements and setting up all kinds of activities for everybody who wants to come out for that. The information again is on fleetsuccesssummit.com, and it's all going to be about the 4 pillars of fleet success, right? Taking fleet leadership, business, technology, and fusing all of those things together into one awesome, awesome convention.

Yes, I'm looking forward to it. Should be really awesome.

It's going to be fun.

It's kind of the first of us thing here. Nobody's ever focused just on this.

Well, and nobody's ever brought together people from this many different industries. You know, like we're talking about people who are leadership authors and people who are fleet experts and trucking and lawyers and like, it's going to be—

Schoolhouse and government.

It's going to feel a bit of a mashup, but it's like the mashup. You know, if we want to talk about fleet success being all these things, right? These are the people you want to hear from. So I look forward to seeing you all out there. And until next time.

Thanks for joining us on this episode of the Fleet Success Show. If you liked our show, we'd appreciate your 5-star review. Be sure to subscribe anywhere you listen to podcasts and come hang out with us anywhere on social media @fleetsuccess. See you next time.