That this market is intrinsically tied to new trucks becomes more apparent at times like now, when supplies of late-model power units are growing scarce.
Remember the pre-buy of 2006? That's when thousands of fleets ordered tens of thousands of trucks with 2006-model diesels because they didn't want to take a chance on the ‘07 engines with diesel particulate filters.
Class 8 sales that year totaled an unheard of 286,000. Dale Tower, vice president for remarketing with Ameriquest Used Truck Services, says many of those pre-'07s went to the resale market in 2011 and 2012, fueling brisk sales at reasonable prices.
Today, however, there aren't a lot of “late-model” 2008s and 2009 models.
“It's a slow start,” Tower says of used truck sales so far this year. “We're seeing a sluggishness in 2013 versus 2012 and 2011. There's a lot of dynamics out there affecting the market.”
Tower says he talks to Ameriquest's member-dealers and fleets every day about resales at the retail and wholesale levels. Demand for good used trucks is being pushed by a slowly expanding economy. Exporting is another factor, with units being shipped to Central and South America and Russia.
“The whole situation with truck engines in the last five years has been nuts,” Tower says. “Cat went out, Paccar (Kenworth and Peterbilt) went from almost all Cat to some with Cummins ISX and now some with their own engines. Mechanical people don't like new engines because they know there's gonna be quirks in them and they don't want to be guinea pigs.”
There's a shortage of late-model equipment out there, and they're tough to sell due to price, Tower explains. You'll see 2009, 2010 and 2011 trucks priced from the high $50,000s into the $80,000s. In previous years, similar trucks with similar miles would have fetched less than $50,000.
The situation is the result of EPA regulations, Tower states. Not many new trucks were sold in 2008, 2009 and 2010. A lot of 201 1s are now being made available. “Nobody likes those engines, but they're what you have to take if you want something of that age,” he says.
At issue are DPFs Tower says.
“Engine problems lead to OEs not being able to offer the trade-in values that fleets have been used to,” he continues. A fleet that normally might expect a $35,000 trade-in gets only $22,000 instead.
“If you're turning in 2,000 trucks and you're upside down by $5,000 per truck, you go to another OE and they jack up the value of the trade-in but also the price of the new truck, and the fleets are happy. It's a game.”
Steve Lam, vice president for ACT Research's commercial vehicle sector, confirms the equipment shortage. “For dealers that's been good because it pushes up prices, but for buyers there are shortages of some types of trucks. There are plenty of sleeper cabs, but shortages of vocational trucks.”
In January, Lam says, the average used Class 8 truck sold for $47,500, down from January 2012 at $52,500 — but that was also the high-water mark, he notes. The majority of trucks are sleeper cabs, but some are daycab tractors and various types of vocational trucks.
“Prices plateaued, and we're now seeing some softening,” Lam says. “2012 prices were up 10% over 2011, but that won't continue, and we will probably see a 5% to 7% decline by the end of the year because trucks are getting older, to 6.5 to 7.5 years and miles from 550,000 to 600,000 miles.”
Arrow says the driver shortage has boosted fortunes of owner-operators and increased its sales of used trucks to them. Small and medium-size fleets comprise its other major customer group. Arrow is wholly owned by Volvo Trucks, but operates independently and handles all makes and models.
The view from the dealer lot
Business is bustling so far this year at Arrow Truck Sales, a major player in the business.
“Business fell off late last year, but it was good in January, and February has been good,” says President Steve Clough. The Kansas City-based operation handles all truck makes and models. The fact that it's owned by Volvo Trucks enabled Arrow to keep running and finance many customers when many other loan sources dried up during the recession.
Clough sees sometimes-high miles on trucks, but thinks prices have been reasonable. “The average mileage has gone up in what the small guys are buying,” he says. “There's a struggle for them to find trucks that they can afford payments on. We're selling a lot of2007pre-DPF trucks.”
You can still find pre-DPF trucks with only 500,000 or 600,000 miles on them, he said, because owners didn't put a lot of miles on them during the downturn. They might cost $38,000 to $42,000, he says, with the price depending on specs, power and transmission.
“Owner-operators still like a 13-speed transmission, though some will take an automated. They like aluminum wheels and other attractive-looking equipment.”
Although there is high demand for trucks with less than 300,000 to 400,000 miles, he says, many people are keeping their trucks longer to create more equity in the face of new-truck pricing.
Sometimes Arrow changes up some of the truck specs to give them broader appeal.
“For a while the automated transmissions brought less,” Clough says, but today these trucks hold their own. “The Volvo I-Shift and Mack mDrive cause the vehicle to hold its value better. But if you have a truck with a 13-speed manual transmission and high horsepower, that still brings a premium. Converting 9-speeds to 13-speeds is still a good idea, and we'll go ahead and convert them.”
“Sometimes we'll get in fleet trucks with wide-base tires, and we'll swap out those for duals, or steel for aluminum,” Clough says.
While aerodynamic tractors have become the norm in trucking, “traditional trucks still command a strong demand in the secondary market,” says Robert Woodall, director of sales and marketing at Peterbilt, whose Model 379 and 389 conventionals are among the most popular of that style. “Daycabs also demand a premium. You won't find a lot of daycabs in the secondary market.”
Brock Fredrick, director of used-truck pricing and marketing at Navistar International, says one of the reason daycabs are always a little scarce is because owners don't trade as often and they seem to be more likely to sell them on their own.
DPFs play a big factor
EPA emissions regulations and the resulting equipment are affecting the used-truck business as much as they do new trucks, Clough says. That's especially true in California, where requirements for DPFs are being phased in.
“We don't carry any pre-DPF trucks out there. Any 2007 and earlier trucks we take out of the state,” Clough says.
Elsewhere, buyers often will choose a 2006 diesel over a 2007 with a DPF because they want to avoid unplanned and sometimes expensive maintenance on the filters.
Clough believes truck builders didn't do a good job of communicating how DPFs should be maintained, and that led to problems for customers. “Our first experience with selling DPF trucks was not a good one, and as a result we do things a lot differently today,” Clough explains, including making sure the DPFs are cleaned before the trucks are sold to anyone.
Once manufacturers’ warranties expire, replacing damaged DPFs is up to owners, and the cost can be high.
But DPF warranties are newly available from National Truck Protection, which underwrites most coverage for used trucks, according to Rick Clark, NTP's vice president of sales.
He's also the current president of the Used Truck Association, made up of dealers and others in the business.
To be covered, a filter has to have been recently cleaned, resealed and reinstalled on the truck.
“We've been watching it for three years,” he says of the DPF situation. “It just took a long time to come up with a program. We cover against cracking of the substrate. You have to buy an engine warranty to run parallel, and they go on one contract. If there's a failure, we will supply a new or reconditioned filter, whichever is faster.”
When Schneider National’s tractors are taken out of road service, they’re prepped for sale to smaller fleets and owner-operators. Last year Schneider sold about 2,400 tractors, mostly Freightliner’s Century Class, from 18 locations around the U.S. and Canada.
Fleet DIY sales
Many large fleets, including Werner, Celadon, Covenant and Swift, are pulling away from the trade packages and selling their used trucks themselves, says Tower at Ameriquest. “They like the flexibility. Probably two-thirds of the 100 major carriers have efforts, from a couple of guys on the phone to having dedicated lots.”
Do-it-yourself sales by fleets becomes a trend when used-truck prices rise, says Steve Lam at ACT Research. “It cycles with the market. When prices go up, fleets decide to cut out the middleman and sell them themselves. When they go down, they wonder why they started with this.”
Some see this as a good sign for the market, even if fleets become competitors to OEM and independent dealers. And plenty of other fleets still trade in their trucks. Fleet sales are almost all sleeper-cab tractors with decent specifications, because fleets learned long ago that they had to have nice equipment to attract drivers.
Schneider National has gone into DIY sales in a big way, according to Rob Reich, vice president of maintenance. Its sales volume often exceeds 2,000 a year, rivaling most large used-truck dealers.
“We've been doing this for years,” he says, “but we took a different approach last year and in 2011. We look at trade-in options, but we sell the majority of our own. We do better financially. We grade the truck when we drop it out of fleet service, determine what type of repairs it needs and what type of reconditioning. We clean it in and out.”
Buyers range from owner-operators to fleets buying five to 10 at a time, as well as wholesalers and exporters, Reich says.
“It doesn't cost a whole lot to prepare and sell it, about $1,000 to $1,500 to get the truck ready, plus some staff costs. We have eight people up here who keep up the website and the 800 line.”
Most of Schneider's used trucks now on the block are Freightliner Century Class sleeper-cabs with 500,000 to 800,000 miles. They have Detroit 15-liter Series 60s and 10-speed manuals, though quite a few this year have Eaton Ultra-Shift automated transmissions. Prices range from $20,000 to $35,000. Schneider also sells some daycabs, Reich says. It has 18 big-city locations where the tractors are displayed.
A lower-volume operation at 400 to 600 vehicles a year is TMC Truck Sales, which has been in business since 2000, says Reggie Ierwin, a former banker who manages the enterprise. The name of its website, blackandchromesales.com, describes what's on the lot at the trucking company's headquarters in Des Moines, Iowa. Miles tend to be high, but the shiny KWs and Petes are exactly what many second owners covet.
“We had Freightliners and Volvos in the past,” he says, “and the reason we run Kenworths and Peterbilts in the fleet is that they're easier to sell” to the owner-operators and small fleets who are primary used-truck buyers.
Not all the vehicles are road veterans.
“We've sold trucks with a million miles on them and we've sold trucks with a hundred miles on them. If we can sell one for more than we paid, we'll sell it.”
TMC's fleet maintenance people take good care of the tractors, so not much is needed to get one ready to sell. “We take off the signage and take the satellite transponder out of the truck, and erase the parameters in the engine's ECM,” he says.
“That way the next buyer can set 'em where they want to."