Fleet Management

Fleets Bear the Pain in Glut Market for Used Trucks

May 26, 2017

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A classic glut has created a buyer's market for good quality, low-mileage Class 8 tractors. Photo: Ritchie Bros.
A classic glut has created a buyer's market for good quality, low-mileage Class 8 tractors. Photo: Ritchie Bros.

A used truck market that has been unusually soft for months is showing signs of leveling off, industry experts say. However, a glut of used trucks remains on the market and, in extreme cases, some fleets actually owe more for equipment than it is now worth on the secondary market.

The roots of this soft secondary market date from late 2015. Large fleets had placed large orders for trucks as the U.S. economy began to rally in the 2013-2014 timeframe. But the economic upsurge didn’t last. By the third quarter of 2015, retail orders were lagging and manufacturing levels fell off as a result. As freight volumes dropped in response, fleets began to shed suddenly excess equipment, resulting in high volumes of relatively low-mileage trucks, in excellent condition landing on dealer lots all over the country.

“Yes. It’s a classic truck glut,” said Chris Visser, senior analyst and product manager, commercial vehicle valuation services for J.D. Power and Associates. “Supply in the used truck market still outstrips demand, although we have tracked a gradual trend since January or February of this year indicating more retain buyers are purchasing – which of course goes hand-in-hand with the excess inventory and the overall quality of the used equipment available today.”

Citing J.D. Power’s Commercial Truck Guidelines Industry Update, released earlier this month, Visser noted that the average sleeper tractor sold wholesale in March was 70 months old, had 535,833 miles, and brought $29,314. Compared to February, trucks sold in March were one month newer, had 1,515 (0.3%) fewer miles, and brought $85 (0.3%) more money. Compared to March 2016, the average sleeper sold this month was 12 months newer, had 85,719 (13.8%) fewer miles, and brought $4,385 (13%) less money.

This jibes with The American Trucking Associations’ research on used truck pricing. “Our data shows that it’s not just prices that are down,” said Bob Costello, ATA’s chief economist. “The average mileage per used truck is down as well. Which means buyers are able to get a better truck at a cheaper price.”

As a result, Costello said some smaller truckload carriers are adding equipment. “They’re seeing these good deals out there and buying accordingly,” he noted. “And they’re also adding drivers that were also cast off by the bigger fleets.”

This bull market for buyers is, of course, offset by a bearish one for truck-selling fleets, which are being forced to deal with the deflated secondary market in various ways. “Larger fleets now are forced to sit on their current equipment longer in hopes the secondary market corrects,’ Visser said. “In many cases, they’re being forced to write off this over-valued inventory to keep their bottom lines as healthy as possible."

“This is a major problem for larger fleets,” Costello said. “We’ve seen several instances where the earnings of publicly traded large fleets have been dinged because they are unable to get full value for their used equipment.”

Visser said there are indications that recent upticks in economic output are stimulating the used truck market and alleviating the surplus supply somewhat. But he still anticipates the soft truck market to remain for the foreseeable future. “If you look at the number of new trucks sold in the past couple of years, and figure that most fleets will still sell or trade in that equipment in three to five years, it appears these market conditions will continue through 2020 at least – unless the trade cycles change in the meantime.”

While the industry is awash in good quality used trucks at the moment, the market does have one interesting quirk: Currently, pre-2007 model trucks are commanding a premium price due to their lack of federally mandated emissions-control equipment.

“We continue to see strong demand and high prices for pre-2007 emission trucks, especially units equipped with high-horsepower engines, 13- to 18-speed transmissions and larger axles,” said Mike McMahon, strategic accounts sales manager, transportation, Ritchie Bros. “While we don’t typically see pre-2010 (2008-2011 model years) going for more than post-2010 trucks (2012 model years and later), we continue to see strong pricing on the equipment that most dealers don’t typically stock, such as tri-axle sleepers and day cabs. Pre-emission truck values remain strong as they are highly desirable for the known reliability and ability to operate within the global markets that RBA sells into.”

“Pre-2010 trucks do well,” Visser added. “But pre-2007 models do extremely well – provided you can find one that’s been rebuilt and has relatively low miles. Owner-operator-spec’d models do particularly well, although there are hardly any of those left. But yes, if you’re not on either coast and can get away with running a pre-2010-compliant truck, they are very popular and command a premium price accordingly.”

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