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Copyright © 2001 FleetWatch magazine and FleetWatch On-Line. No part of this publication may be reproduced without the prior written permission from the publishers. Views published are not necessarily those of the publishers. |
Slip Sliding Away
THERE HAS been a lot of talk about used car prices dropping substantially in 2005 and very little is mentioned about what effect the current market conditions will have on truck pricing. Well let me tell you that used truck pricing will follow suite. While European truck prices have remained at the same level since 2002, American truck prices have dropped substantially in South Africa. The deflationary cycle has been putting pressure on used truck pricing for the last 18 months, however, the big drop will be driven by American truck pricing. To give you an example, an American 500HP 6x4 truck tractor will sell new for around R912, 000.00 and the equivalent European truck tractor sells for around R1, 060,200.00 a difference of R148, 200.00. The used truck business has a lot more challenges to face when compared with our colleagues in the used car business. The reduction in exports to our neighbouring countries due to our used vehicle pricing not being in line with world markets is creating a situation where our used vehicle parc is growing in size year on year. In the UK you can purchase a 1999 Mercedes-Benz 1835LS/36LC 4x2 R121, 380.00 versus R383, 000.00 in SA. That’s a 68% difference. In the USA, a 2000 model 430-500HP 6x4 truck tractor sells for around R170 000. The equivalent in SA sells for R513, 000.00, a 65% price difference! There has been a proliferation of used truck imports into our neighboring states, which will impact on our SA cross border operators. You just cannot compete when your initial capital outlay is 65% higher. Importers are not paying much higher prices than the above to land vehicles in Southern Africa and the net effect will be pressure on our pricing. If we use a 3 year life cycle, the used truck dealer will be presented with far more trade-ins in 2005/2006 as 2002/2003 were record new truck sales years. This will overload our used truck inventory levels which are already on the heavy side in our relatively small market and push prices down. New technology trucks (NTTs), have had a significant role to play in the devaluation of used truck prices. It has become common practice with NTTs to use a three-year cycle and in some cases even shorter periods, opposed to five years with old technology trucks. This practice put a tremendous burden on the used truck business from a rand value point of view. The inventory values of used truck dealers soared having to trade-in one to three year olds. The biggest challenge for the used truck business is the high cost of reconditioning NTTs. The new technology trucks develop higher horsepower and torque outputs and they achieve this with lighter components. This simply spells higher rates of wear and tear on major components. Over and above the major components, the used vehicle operator has the added expense of having to purchase many new parts that cannot be reconditioned as in the past, i.e. brake valves and computer control units. A practice used to great effect in the used car business today will have to apply to NTTs when presented for trade-in and that is, "can I please see your service book? If you do not have one then you will receive considerably less for your truck". Manufacturers have all improved their warranty offerings and in many cases extended them to as long as 4 years, where in the past the norm was one year only. This is a major step forward for our business, however, very few trucks in SA have a service record which makes the extended warranty null in void. In many cases the NTT is still in its warranty period when a major component failure occurs, however, the previous owner did not have a full service history so the used truck dealer ends up paying. Not fair, I would say. A key ingredient in selling any NTT will be the used vehicle dealer’s warranty offered. This risk is often carried solely by the dealer or the insurance company. Hence, a lower price will be paid for a vehicle presented without a full service history. What role has the ‘Guide’ played in the past three years and has the Mead & McGrouther Commercial Vehicle Guide adjusted their values accordingly? The answer is no. One of the main reasons for the values in the guide being inflated is that certain manufacturers have not posted their new retail price lists or have kept their inflated retail price list to artificially increase the trade values. No new trucks are sold at full retail today, there is always a discount. This puts the financial institutions and insurance companies at risk as they use the guide extensively to evaluate the equity they have in the asset being financed or insured.You cannot manipulate used vehicle pricing through the use of the Dealers Guide, as a used vehicle is only worth what the market is prepared to pay for it. And let me tell you, the buyer of used trucks today is a more discerning buyer than in the past. To conclude; the used truck business will come under a lot of pressure in 2005. If caution is thrown to the wind and dealers pay the wrong prices (too low) for used trucks, new truck sales could be severely hampered.
Mark Croxon |
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