Dale Tower, vice president of remarketing at Corcentric Capital Equipment Solutions, discusses how, after climbing to the highest historic inventory levels for used trucks in 2019 and 2020, the market has overcorrected itself into a historic low for inventory levels.
They say no one is really “in the know” enough to time the stock market. There are numerous reasons. According to Warren Buffet, “If someone says they know what is going to happen in the stock market, they are a liar.”
The used truck market is a different story. Those who watch trends of “for sale” inventories and measure that against new truck orders, freight activity in tonnage and volume, along with the current and forecasted economic data can make good estimates of where demand and pricing are going. A business can make educated decisions on when to sell used equipment to optimize gains or limit losses.
After continuing to climb to one of the highest historic inventory levels in 2019 and early 2020, the used truck market now has overcorrected itself to a historic low level of inventory (see Figure 1). With the basic economic model of supply and demand, the values also have gone from historic lows to jaw-dropping highs. Used trucks and trailers are now at the highest values and prices of all time.
In two years, some used truck prices have nearly doubled, especially in the Class 8 truck market. Dry van trailers have seen the most dramatic increases, where even 10-year-old, 53-foot trailers have values well exceeding the prices they sold for when new.
What started as a transportation catch-up phase during the few months when things were shut down during the pandemic has evolved into a long-lasting and seemingly never-ending attempt to catch up in supplies of everything.
Elements of many supply chains were not all coordinated because global links in those chains did not return to work at the same time. In transportation, the supply chain issues have not recovered due to a shortage of microchips, which is having a huge impact on new and used truck sales.
The resultant domino effect has impacted, and in some cases crippled, other areas of transportation. It has become a major contributor to overall inflation, as most of the increased transportation costs simply are added to the cost of goods sold. That means people will continue to feel the pain at the cash register.
The shortage of new equipment migrated the demand to the used truck market and put a major dent in used truck inventories. OEMs have been increasing their new prices significantly over MSRP, and has created the greatest appreciation of used values ever. Some new equipment increases were due to the heightened cost of parts and supplies for everything from the cost of metals to key components.
Previously, very short windows existed where used equipment appreciated in value. But there has never been anything to compare with this last year of activity.
On the driver side, spot rates have increased so high that some large fleet drivers have transitioned into becoming owner/operators and are purchasing used trucks, further stressing the used truck inventory. This is adding to the driver shortage issues at fleets and has potentially skewed some of the tonnage numbers, which are measured in contracted loads. Considering tonnage numbers reflect lower numbers than pre-pandemic levels, the actual activity is probably higher.
Some vacated driver jobs have gone unfulfilled, but fleets continue to hold on to their idle trucks. They may not be able to replace sold vehicles in the event they get more drivers.
This unique market situation has led some companies to amass incredible profit opportunities by “de-fleeting” to even greater levels. Keeping in mind the physics adage of “what goes up must come down,” there are some fleets that may even be considering exiting the market early. Although most folks “in the know” state this current market condition should remain for the rest of the year.
Assuming power equipment is properly depreciated, the return on late-model equipment—one- to three-year-old units—could be equal to or higher than the original purchase price. A similar situation exists for older assets. For example, gains on the sale of a five-year-old Class 8 sleeper with 500,000 miles could be equal to twice the book value.
Bottom line: The opportunity to “time the market” for these types of decisions—to de-fleet underutilized assets or exit the market—has never been better.
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About the Author
Dale Tower is Vice President of Ameriquest Used Trucks, a position he has held since 2004. Tower comes from a long transportation background, formerly serving in executive roles at Ryder and Budget Rent a Car, as well as serving in general manager roles at OEM Dealerships. His primary focus is on the development and growth of remarketing services that assist Corcentric members in selling their used equipment. AmeriQuest Used Trucks is a major national used truck and trailer wholesale and retail dealer serving the public, based in Bonita Springs, Florida.