According to Jasen B, a TrueNorth owner-operator, buying a semi-truck is one of the critical decisions you have to make in the trucking business. He's bought both new and used trucks, and if money were no object, he'd hands-down recommend buying a new truck. But, buying his first truck used, a Peterbilt 579 for which he spent $61,000, and being financially disciplined allowed him to later purchase a new International LT 22 for $145,000. The decision to buy a new or used rig is often a matter of expense. You need to ask yourself: Is it worth it and can I afford to spend more on a new rig, or should I look for a used one?
It's to your benefit that you carry out extensive research on the trucks. Talk to owners who have been in the business for a while and find out what your options are. More importantly, know your full costs down to your cost-per-mile and what you can afford to pay for.
Buying a New Semi-Truck
Buying new trucks comes with many advantages. However, the cost of a new truck is expensive and can be discouraging. A new semi-truck cost lies between $125,000-$150,000, possibly more depending on the options you choose. A new truck could be worth the investment because of the following advantages.
You Know What You Are Getting
One of the main reasons most people in the trucking business prefer new semi-trucks is having full knowledge of the truck’s history. Even though you may get a thorough report on a used truck, previous owners may not disclose or may not be honest about all past mechanical or exterior issues. You may not know how well the truck was maintained or how it was driven while with the previous owner.
However, if you buy a new truck, you know exactly what you're getting and how best to keep it in good working condition. With proper preventative maintenance and care, a new truck can give you years of reliable service.
Lower Operating Costs
Extensive Warranty
Most new trucks come with a lengthy and comprehensive warranty covering major damages or performance issues. Even though some used trucks come with their warranties, new trucks come with an untouched OEM warranty. Warranty from a manufacturer is the most cost-effective and comprehensive warranty for your truck. The manufacturer can also allow you to extend the warranty.
Today's trucks get more mileage per gallon
New trucks aren't cheap, but newer model trucks often boast a better fuel economy than much older models, and that can save you on fuel costs which can be one of your biggest expenses.
Years ago, Jasen B bought his first truck used. He was hauling heavier freight back then and had lower rear-end gears to help with horsepower. He was lucky to get six miles per gallon. When he bought his new "Pavement Princess", he opted instead for tall rear-end gears and a fuel-efficient motor. He now averages 7.8 miles per gallon. He saves $1,500 to $1,600 every month on fuel cost, which for some folks is enough for a truck note.
Cheaper maintenance
Warranty will cover a lot of the regular upkeep expenses. You'll still have to pay for some maintenance and repair, but it will be significantly less than what you would spend without the warranty.
Depreciation Tax Deduction
You can use depreciation of your truck purchase to offset taxes in the first three years. For instance, if you buy a truck for $120,000, you can recognize a $40,000 depreciation expense deduction each year. This would reduce your taxable income by $40,000. At a 35% corporate tax rate, you'd save $14,000 per year on taxes. All purchases of trucks, new or used, can be depreciated for tax benefits, but newer trucks that have a higher value to begin with and will give you the largest depreciation expense benefit.
There's a second way to depreciate your truck asset. The Tax Cuts & Jobs Act of 2017 put in place a temporary bonus depreciation to stimulate the economy. Bonus depreciation is a tax break that allows a company to deduct 100% (up to $1 million) of the cost of qualifying assets right after buying rather than writing them off during the asset's service life.
So, in the first year, your new truck qualifies for up to a 100% bonus depreciation deduction, which would further lower your taxable income and potentially put you in a lower tax bracket. Note, though, this bonus depreciation benefit of 100% is only eligible for trucks purchased through 2022 and starts to decrease beginning Jan 1, 2023. Jasen B says he plans to trade in his truck every three years to continue getting the benefits of depreciation.
“Time is money. You don't have to spend weekends sending your truck to the shop. It frees up your time to be with your family or on the road.”
— Jasen B
Peace of Mind
A new truck minimizes the risk of frequent downtime and repairs and gives you peace of mind. It can be stressful and costly to drive or manage a truck that keeps breaking down. Your business may also run behind schedule because of the time spent on repairs and on-road delays. Or, you may lose revenue from not being able to run. "Time is money. You don't have to spend weekends sending your truck to the shop. It frees up your time to be with your family or on the road", says Jasen B.
Buying a Used Semi-Trucks
Most owner-operators buy used semi-trucks because they are more affordable. For a large-ticket item like a truck purchase, the most important decision factor is whether you can pay for and finance it. Used semi-trucks are not a poor investment. You may get one that will help you run your business as effectively as a new truck. As long as the rig is adequately maintained, it could provide you with lengthy service and offer a great return. Here are some advantages of purchasing a used semi-truck.
Lower Upfront Cost and Monthly Payment
A used truck is cheaper compared to a new semi-truck. The price is significantly lower for used trucks because of the depreciation during the first few years of its service.
Relatively Higher Resale Value
New trucks lose value as soon as you drive them off the lot. Even if a used truck is just a couple of years old, you'd save on the depreciation of that truck's value. You can later sell it for an amount closer to the price that you bought it at.
Lower Insurance Rates
The cost of truck insurance is based on the value of your truck. You'll pay lower insurance rates for a used truck than you would for a new truck valued at a higher price tag.
More Data
Used truck models have also been around for longer, and there’s more information out there for you to research. Brand new truck models are not guaranteed bets and haven't been road-tested as much - recalls and faulty features could leave you without a truck for months, devastating your business.
Owner-op Ernest C shares this tip: "The biggest trick I feel is to look at comparisons between recalls and common problems when buying used."
Made to Last
Some older models were built to last longer. According to one owner-op Kelly B, "With the new technology in the new generation of trucks (either good or bad) the trucks aren't made to run the time frame they used to, repair costs are so high that it has almost forced ICOs into new trucks for the warranty and cost savings over time." Despite this, Kelly B is following the guidance of his accountant who is recommending he buy new.
Final Words
Jasen B recommends that IF you can afford it, buy a new truck, because you will pay one way or another in the end, whether it's in the form of maintenance and fuel or a truck note. But, the key word here is IF. When buying a truck, you'll want to put as much money down as possible and get as low of an interest rate as possible to minimize your monthly payments. Carrying large amounts of debt and having high monthly truck payments can cripple your business.
Jasen B bought his used truck because it was the smart thing to do. Eventually, he was able to save up for a healthy down payment on his new truck and get a low interest rate to make his monthly truck payments manageable.
“Be optimistic, weigh your options and always make the choice that is best for you and your goals.”
— Ernest C.
Do you have tips or stories to share on buying used or new trucks? Let us know in the comments.