The good news is that the sales volume of the used truck market, especially the Class 8 portion, is generally stable. The alarming news is the significant increase in the number of used trucks that are literally pouring into the market.
The good news is that the sales volume of the used truck market, especially the Class 8 portion, is generally stable. The alarming news is the significant increase in the number of used trucks that are literally pouring into the market.
This is a switch from recent years when, as a result of the reduced truck production that took place from 2007 to 2010 — about half of the number of trucks that normally would be manufactured were produced during that time span — used trucks were in short supply and that made values soar.
But starting in 2011, truck manufacturers began building over 200,000 trucks a year and that number kept growing. This year, approximately 240,000 Class 8 tractors will be sold in the U.S.
This glut of “future used trucks” started with those 2011 models. Add to that the 2012 and 2013 trucks that are now in the used market, with the 2014s close behind. Given that these trucks will continue to steadily stream into the marketplace, by June of 2016 it’s possible we could be drowning in used trucks as supply far surpasses demand.
The initial response to this significant influx of used trucks has been a prompt downward price adjustment, a sign of the simple supply and demand model at work. In times like this, it’s necessary to be very aggressive with pricing in order to be competitive in the market.
Another significant a condition is the fact that new truck sales in 2016 may see a significant drop-off as fleets begin to experience severe difficulties in disposing of their used trucks profitably. If there is such a reduction in new truck sales, the effect over time would help to stabilize the used market.
So, a fleet owner has three choices when the supply of used trucks outstrips demand and prices plummet. They can keep their existing trucks and run them longer, take a loss on the sale of the used truck or trade them in to a dealer and accept over-allowance cost on the new truck to be made whole on their used.
With option one, the fleet is likely taking on increased operating costs because older trucks usually need more maintenance. However, chances are a fleet won’t suffer the immediate losses it would in selling its trucks in a depressed market.
Option two has no upside because there will be an immediate financial hit to the fleet’s bottom line profitability.
Should the fleet manager choose option three, he is rolling the dice and taking the chance that used truck values will improve in three years when he can recoup the higher than market cost he paid for the new truck.
There are some common sense approaches fleets can take to try to ensure their used trucks are the most desirable on the market, since buyers currently have so many choices available to them.
Here are a few other interesting factors affecting the used truck market:
Finally, as it relates to market pricing, used truck costs will probably continue to soften at about the same rate, as supply exceeds demand. This assumes an expectation of stability in the economy and freight volumes. If the freight volume or the general economy falters, then used truck prices would be in a position to free-fall.
This current used truck climate bears close watching; you will want to be as informed as possible in order to be proactive in making adjustments and decisions, as needed.