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Past Issues

June 2005

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UsedTrucks

Volumes Up - Margins Down

Selling used trucks will always be a tricky business simply because the industry is directly affected by the price of new truck which, as we know, is affected by many factors (exchange rates, GDP, inflation, investor confidence, interest rates etc). For OEMs holding second-hand stock as a result of trade-ins on their new models, the task is especially problematic. They don't have the autonomy of the independent 'high-street' dealer who can buy and sell on the deemed value of used trucks alone. Their job (the OE used dealers) is to ultimately promote the sale of a new vehicle via a customer-friendly trade-in price, writes Paul Collings. 

Braam Viljoen, sales manager, MAN Used Trucks, Centurion, is one such dealer. He says: "New truck prices have in fact stabilised over the last two years and have actually dropped since March this year. We have to support the sale of new trucks but sales people selling new trucks don't want to make over-allowances on a trade in." This describes the somewhat competitive motivations within a company like MAN between new and used sales personnel. 

Hard bargains, heavy hearts
Viljoen also states that buyers always drive a hard bargain. It is after all, a buyer's market right now. "Truck owners will go through the Meades & Mc Growther price guide where the book value of his truck is stated as being R400 000. The owner will phone us and say he is looking to value his truck for insurance purposes, for example, and then come to us to trade it in, expecting R400 000. The Meades & Mc Growther book is simply a guideline on mint condition trucks. We have to look at the tyres, the engine and the overall condition of the vehicle and then price it.

"From a MAN Used Trucks point of view, there is a problem with many used truck buyers coming to buy a vehicle from us. They think the truck is automatically covered by the new MAN after sales service offering. If the customer doesn't purchase a warranty from us, that truck is sold 'as is' and yet still the buyer will come to us when a breakdown occurs and expect us to pay the cost of fixing it. Customers aren't prepared to pay the price of an extended warranty (about R40 000 on a plus-27 ton vehicle). But this isn't a lot of money when compared to around R220 000 to replace an engine."

The reality is that the price gap between new and used is extremely narrow. Viljoen describes one case in particular involving a mint condition MAN LE 280 (a 2003 model with 250 000kms selling at R400 000. A new equivalent costs R500 000].

"Buyers want a used truck as cheap as possible," he says, "otherwise they'll buy a new one. We've seen a rise in volume sales but our margins have to be lower. We have to work much harder to move used trucks. We can't afford to carry stock for any length of time. What I'll do is get a cover price from a second-hand truck dealer and move the trucks as quickly as possible to get the sale through on the new vehicle."

A new breed of buyer
On the question of who buys used trucks these days, Viljoen explains: "More and more BEE buyers are entering the transport business and many look for a good used truck. MAN Centurion only deals in late model trucks (post 2000 models for finance purposes) but now we're moving into trailer sales as well because the new entrants (BEE) need a complete rig to start operating."

Used trailers are notoriously hard to come by and now, with ABS legislation on trailers, the market is even tighter. "You can sell a pre-2005 trailer as a rebuild but you can't register it without fitting ABS. We are not in that business," says Viljoen.

New solutions for older trucks
The need to overcome these obstacles is huge among used truck dealers and Viljoen is up for the challenge. "I'm currently investigating the bonded market where we import both trucks and trailers from Europe and the USA and export them into Africa. They have the specs and generally comparatively low mileage to South African trucks."

When asked what applications are driving used truck sales, Viljoen has one answer: "Construction. The 2010 World Cup Soccer, Gautrain, most probably the 2012 World Cup Rugby and other big local property developments all need tippers, mixers, and flat decks for bricks etc. The thing is you can't get your hands on is second-hand (fitted) MAN construction vehicles. They run on six cylinder engines so they last longer than four cylinder engines and the bottom line is, their owners hang on to them - they're still being used out there."