The Hidden Costs of Transportation Asset Liquidations

Most secured creditors are familiar with the traditional costs associated with the liquidation of a fleet of titled transportation assets (i.e., trucks, trailers and automobiles).  Those include:

  • Commissions and/or Buyer’s Premiums
  • Marketing and Set-Up Costs
  • Occupancy Costs (Rent, Real Estate Taxes, Utilities, Personnel, etc.)

However, the liquidation of titled vehicle fleets has many hidden or unapparent costs that can come as a surprise to the uninitiated. 

It should be noted that all costs noted below were incurred by the seller during a recent liquidation conducted by Hilco Industrial of a 10,000-unit truck and trailer fleet. While this may have been the “perfect storm,” any one or some of these circumstances may become a part of the liquidation costs of any large vehicle fleet.

Fleet Asset Lists
In today’s world,these lists are often maintained by internal accounting groups and may be exported to Excel®, or are maintained in Excel® by a transportation manager. Regardless, accuracy is key. With thousands of units operating from multiple locations, it can be difficult to determine the location of every unit, if every unit is on the list, or even if the unit exists at all. Unit numbers, VINs, make, model, and year all must be correct to reach an accurate estimate of value and have an effective marketing tool. Complicate that with the confusion of a company-wide shutdown during which vehicles are parked on short notice, and the working fleet list may be substantially wrong.   This can result in a costly and time consuming manual fleet audit to confirm the vehicles to be sold and their current location.

Titles & Keys
Every truck or trailer operating on public U.S roads today has a state issued Certificate of Title noting make, model, Vehicle ID number (“VIN”), the owner, and any lienholders.  It is very difficult to sell (or even scrap) a vehicle without one.  For a large fleet, this means thousands of titles must be consolidated, verified and properly signed over to a new owner when sold.  If titles are missing or incorrect, applications for new titles will need to be completed.  Further, thousands of keys will have to be sorted and compiled so that they may be sent to the buyer on closing.  This will likely mean that a significant number of company employees will need to be retained for a lengthy period of time to do this job, or the work must be contracted to a third party. 

Liquidation Strategy
There are three typical liquidation strategies with a large fleet:

  • Liquidate from their current locations;
  • Consolidate the fleet into fewer locations and then liquidate; and
  • Consign the entire fleet to a vehicle auctioneer or liquidator.

All involve different costs that need to be considered and weighed.

If vehicles are liquidated from the locations where they are parked, there are no ongoing costs for drivers, fuel, or insurance; however, the costs to occupy the premises and secure the site from theft and vandalism increase.

If the fleet is consolidated into fewer locations, occupancy costs decrease, but a one-time cost is incurred for drivers, fuel, and insurance to move the consolidated portion of the fleet.

Consigning the entire fleet to a vehicle auctioneer or liquidator increases those relocation costs, but reduces the occupancy costs to zero after a brief period of time.  However, if there are more than a few thousand vehicles, the cost of relocation may be prohibitive.

Deterioration of Value Over Time
Security and speed are important factors in keeping the deterioration of the value of fleet vehicle assets to a minimum over time. Transportation assets are an easy target for vandals and thieves. They are stored out in the open and are mobile. If not secured properly behind locked gates, with 24-hour security, these assets would become covered with graffiti; tires and batteries would be stolen; and/or windshields and windows would be broken or stolen outright. Additionally, the longer the vehicles sit, particularly through a cold northern winter, batteries would die, tires would go flat, bodies would rust, and fluids would leak

The solution is to secure the vehicles as effectively as possible and sell them quickly. Security costs can multiply rapidly over time, especially with numerous locations.

Most transportation fleets are treated as rolling billboards by their owners, because it is free advertising exposed to a constantly changing audience.  However, when a truck or trailer is sold, company logos, trade names, and Department of Transportation numbers need to be removed prior to sale.  This is particularly true if the company name and other intellectual property are sold to a third party. 

This task can be performed by a liquidator or it can be passed on to the buyer as a condition of sale.  In either case, it is a cost that will be borne by the seller whether the liquidator makes it part of the sale preparation budget, or the buyer subtracts it when they make the purchase offer.

Transportation assets can be effective collateral; however, the costs to liquidate must be understood fully if that collateral is to be secured properly.