Time to buy? Why now may be the best time to purchase a used truck

Bob Costello, chief economist for the American Trucking Associations, made an interesting observation last week during ATA’s Economic Summit in Washington, DC – he thinks there is a growing trend of independent contractors leaving their own authority to become company drivers.

There is no hard, factual evidence, he pointed out, just anecdotal data points. First, trucking industry hiring continues to climb, with the transportation and warehousing sector adding over 20,000 workers in August and truck transportation specifically adding over 5,700, according to the latest Bureau of Labor Statistics (BLS) report. Secondly, the order rate for new Class 8 trucks continues to set record after record, with August recording over 53,100 units ordered, according to ACT Research. That was 150% higher than August 2017, and most truck makers now have a backlog of over 9 months for deliveries.

“Super-strong orders in June and July are likely pulling large fleet orders ahead in the schedule, as truckers race to reserve build slots in a market where demand is running well above capacity,” explained Kenny Vieth, ACT’s president and senior analyst. Orders from June to August were booked at a 700,000 seasonally adjusted annual rate, Vieth said.

So, with so many new trucks being ordered, and so many new trucking hires going on, why is Costello thinking that independent contractors are switching to fleets? First, he notes that when trucking companies are surveyed each month by BLS on employment trends, the figures fleets provide do not include ICs, so if a fleet has 10 company drivers and 10 ICs in June and 15 company drivers but 5 ICs in July, it appears the company hired 5 new drivers – which technically it did. What it did not do, however, is add capacity or new drivers – it simply switched their classification.

Costello says that fleets both large and small have fewer vehicles in service today than they did 3 years ago, yet trucking employment is climbing but capacity is not. That indicates to him that more ICs are switching to company drivers, and it could be because replacing a truck with the order backlogs that exist today is next to impossible for many ICs – their single truck order is not going to usurp a large fleet buying 1,000 trucks.

With that said, if you intend to stay out on your own and can afford to do it, there may never be a better time to replace your current truck. It may not be a new one, unless you want to wait for a year, but low mileage, high-quality used trucks are available and there is a big tax benefit to buying this year.

As of July 31, FreightWaves’ SONAR data is reporting the average price of a 3-year-old used Class 8 tractor was $62,548. That is down from $67,201 a month earlier. Four-year-old trucks are holding steady at $53,172 while five-year-old trucks are climbing in value, up several thousand from April to $42,378.

For those thinking of going the used route, there is another big savings right now – bonus tax depreciation. The new tax law signed by President Donald Trump last year includes a 100% depreciation of new and used equipment – used trucks qualify. In essence, according to accounting firm Katz, Sapper & Miller, a company is able to write off 100% of the cost of new and used equipment purchased in 2018. The firm notes, however, that some states do not allow bonus depreciation and it may require an adjustment to taxable income in those cases. (As always, for the latest on the law and your unique situation, it’s best to consult a tax professional)

According to the IRS, you can use the bonus depreciation when the “used qualified property [was] acquired and placed in service after Sept. 27, 2017, if all the following factors apply:

• The taxpayer didn’t use the property at any time before acquiring it.

• The taxpayer didn’t acquire the property from a related party.

• The taxpayer didn’t acquire the property from a component member of a controlled group of corporations.

• The taxpayer’s basis of the used property is not figured in whole or in part by reference to the adjusted basis of the property in the hands of the seller or transferor.

• The taxpayer’s basis of the used property is not figured under the provision for deciding basis of property acquired from a decedent.

While making an investment in a new or used truck can be a major decision, the bonus depreciation is a good way to help offset that cost, especially if your trucking operation has had a good year financially, as so many have. The tax implications could benefit you, and a newer truck could help improve your overall operations through improved fuel mileage and more advanced safety equipment.

For the right owner-operator, buying now may be a winning strategy.