"The used truck market's next challenge will be the limited supply of used trucks in the market place," said Bryan Haupt, vice president of used trucks at Murphy Hoffman Company and secretary of the board of directors for the Used Truck Association. "If you look at new truck build rates over the last three years we will have an abundance of 2007 model trucks to work through."
The industry will be working its way through the last of the '07 models this year and next, said Steve Clough, president and CEO of Arrow Truck Sales.
While 2007 proved to be a good year for production, manufacturers lowered their new truck build rates significantly as the recession hit in 2008 and 2009, Haupt said. This will likely leave the used truck market in short supply of equipment over the next two to three years.
Clough says these '08 models are already hard to find because not a lot were built. Daycabs are also hard to find, and while highway sleeper cabs have been in abundance during the crisis, that oversupply has been rapidly diminishing over the first half of this year, he says.
Hedging Their Bets
A potential shortage in used trucks in the marketplace will also likely be driven by fleets' reluctance to buy new equipment. Saum says fleets are not willing to pay the price of new vehicles.
Clough also believes many fleets are not convinced about the economy and want to sort things out before they buy new. Many traditional new truck buyers are hedging their bets, opting for used trucks for their lower monthly and operating costs.
In addition, fleets are holding on to their equipment for longer trade cycles, Haupt says. While the normal trade cycle has been 36 to 42 months, now fleets are extending it to up to 60 months.
"Where used truck customers had the luxury of purchasing a 300,000 mile truck in past years they will be looking at mileage in the 600's," he said.
Saum says the average age of truck fleets has gone up by almost two years to an average of nine years now.
However, from what Clough hears from the Volvo and Mack markets, customers are very pleased with the new EPA 2010 technology in terms of the better fuel economy and performance of the engines. As that becomes more well-known, you can expect to see that part of used truck demand diminish over the next few months, he says.
Used Truck Sales
Despite some talk about the benefits of the new equipment, used truck sales are up 20 percent from last year, Saum says.
Over the first half of this year, Arrow Truck Sales posted a 60 percent boost in sales from the year-ago period. Clough says the fourth quarter of 2008 and the first quarter of 2009 were absolutely horrible, but things started to improve during the second half of 2009. He expects sales to continue to improve but not at the same pace as the first half of this year.
As demand has increased, so has the average price of used trucks. While four or five months ago, used trucks averaged $20,000, they now go for between $28,000 to $30,000, says Saum. This has righted the price closer to the fleet's original investment. While before they were forced to trade in equipment, now they can make a small a profit and not lose money, he says.
Clough says prices are still historically low, but they've gone up from the third and fourth quarters of 2009.
"With the increase in pricing from the new truck OEMs the spread between a three- to four-year old truck can be as much $50,000 to $60,000; that coupled with the fear of new emission engines makes used trucks a great value in the marketplace," Haupt said.