Used bus sales have stalled as the motorcoach industry remains mired in a pandemic-induced slowdown, with some operators who are trying to sell their buses to raise cash hitting a roadblock.
Because there have been so few sales in the past eight months, nobody is quite sure how much used coaches are worth in today’s skewed market, said Dan Goff, who sells used buses through SuperMax Motors.
“There are buyers and there are sellers, but there is no price discovery,” Goff said. “It’s almost impossible to sell anything because nobody knows what to sell them for or buy them for. Owners don’t want to sell them too cheaply and buyers don’t want to pay too much.”
Price discovery is the overall process of setting the proper price of an asset. It includes security, commodity or currency based on interaction between buyers and sellers, and such factors as supply and demand and the overall economic environment. That process is in disarray in the motorcoach industry because of COVID-19.
Used bus sales
Goff, who also is co-owner and general manager of A Goff Limousine & Bus Company in Virginia, said the lack of reliable price discovery mostly affects late-model motorcoaches that previously were valued at around $250,000 and up. He said most of today’s sales activity involves older, lower-priced buses on the market for between $12,000 and $90,000, with an average sale price of $45,000.
Buyers of such vehicles are more likely to be churches, summer camps and people wanting to convert them to motor homes. But that doesn’t mean there aren’t some motorcoach operators on the lookout for a deal.
“There are some buyers out there,” said Jeff Goldwasser of Motorcoach Services Group, which brokers buses. “But they are budget buyers who know that it is a buyer’s market right now. These are guys looking for deals.”
More used buses on the market
Goldwasser said that, as the crisis drags on, more operators would opt to shut down, especially if they are older and have no children willing to take over their businesses.
There also could be an uptick in closures toward the end of the year if lenders require operators to resume bus payments that have been on hold during the pandemic.
“That will put a lot more buses on the market,” he said. “And while sometimes it’s good to cull the herd, it isn’t good to slaughter the herd.”
Goldwasser said that, while there likely will be an increase in bank repossessions of buses, most banks would rather not take on the responsibility and cost of owning buses and trying to sell them.
“Banks understand that buses are better off with the operators,” he said. “My gut feeling is that most buses will stay with the operators if they were current on their payments before COVID.”
3,000 used buses for sale
Dave Mendenhall, president and CEO of Bus Solutions LLC, which publishes the Official Commercial Bus Blue Book twice a year with information about used bus sales and values, said the motorcoach industry has suffered a few downturns over the years, the most significant one following the 9/11 terrorist attacks.
Competing inventory levels of late-model pre-owned coaches grew to roughly 6,800 units after 9/11, resulting in operators taking advantage of notable savings on one- to three-year-old pre-owned coaches. But the industry eventually recovered.
“The industry has been really resilient,” Mendenhall said. “But this thing (COVID-19) is a different animal. There is no definitive end to it.”
He said there currently are more than 3,000 used buses waiting to be sold, “and that number could easily rise exponentially” depending on how long the pandemic continues.
“I get calls every day from people asking how long this is going to last and what is the value of my bus. But there are so many unknowns.”
Mendenhall said because there have been so few used bus sales in the first half of 2020 compared to normal, “we really don’t yet have enough information to say what the percentage decline in value has been or will be. We know how many used buses are in the market but not how many could be coming on the secondary market. There is no question there is going to be a bulge in inventory and it’s going to be a big one. We just hope lenders will stay with the operators and go the distance.”
The slowdown in used bus sales prompted MCI, a major North American manufacturer of motorcoaches, to sell off its pre-owned coach inventory to a private equity firm. In addition, MCI consolidated the sales staff into one that handles both new and pre-owned sales. MCI said the sale would free up space and allow it to focus on its primary business, selling new coaches.
The company said it would continue taking used buses as trade-ins for its new coaches.
“There can be some unexpected consequences when you sell a bus,” said Tracy Fickett of BusBooks, which specializes in accounting services for the motorcoach and school bus industries.
Fickett explained that buses are depreciable assets, and when they are sold, they could result in a gain or a loss, depending on how they were depreciated, which in turn could increase or reduce the seller’s taxable income. To determine whether there will be a tax gain or loss, the tax basis and any costs of sales is subtracted from the selling price. Tax basis, as it relates to buses and other depreciable equipment, is the cost of the equipment less the tax basis depreciation taken on the bus, she said.
“The amount of depreciation taken is important as the amount of the gain may be ordinary in nature and may not be eligible for preferential capital gains rates,” Fickett said. “If you have used accelerated depreciation methods, such as bonus depreciation or section 179, your tax basis is likely to be low, which will result in a larger gain and more tax.”
For example, she said, if an operator bought a bus for $550,000 on Jan. 1, 2019, and sold it for $300,000 on July 1, 2020, the tax liability would depend on the depreciation method the owner used. If they used accelerated tax depreciation, the tax basis on the bus would be zero and the taxable gain on the sale would be $300,000. If, however, they used regular depreciation (MACRS), the tax basis would be $211,200 and the taxable gain would be $88,800.
Fickett suggested that operators consult with an accountant before selling a bus. In the current climate, the tax ramifications of a sale might not be the top concern of the seller, she added.
“If someone owns an old bus outright and sells it for $50,000, they might owe taxes on $10,000 of that sale,” she said. “But they still get $40,000 to help them today. As a whole, the industry needs to survive today to worry about tomorrow. Some operators have chosen to shut down and let the equipment go. Operators have to determine their own best course of action. Income tax considerations can factor into that.”
It is difficult to tell how long the slowdown in used coach sales will last. Some industry observers expect that as more operators close, the increased number of used buses on the market will further depress prices. Others speculate that, because operators are unwilling to invest in new coaches, demand — and prices — for good used buses eventually will increase.
Either way, Goff said, reliable price discovery in the used bus market is probably two years away.
“The mood in the resale world of buses is not particularly upbeat,” he said.