Used truck pricing pressure is easing as stakeholders from manufacturers to dealers report growing sales momentum despite the lingering pandemic — and because of it.
As the tail of the dog in trucking, used truck sales fall when new truck sales slow. So when major manufacturers shuttered assembly plants for six weeks in March and April, used equipment all but froze. Already low prices dropped even further. Loose capacity heading into the pandemic tightened.
However, in recent months as freight demand exploded for consumer goods to meet at-home demands for school and work, per-mile rates rose. Drivers and equipment sidelined by their companies remained out of the mix. Independent truckers rushed in, buying up late-model equipment to chase a hot market.
A survey of fleets by UBS Securities found that 40% of managers reported constrained availability over the past few months. Fifteen percent of respondents said the used truck market has loosened while 44% reported no change.
“As more demand for the shipment of goods requires additional truck transportation, we expect the market for off-lease used trucks to remain strong for the foreseeable future,” said Francis Maloney, remarketing sales manager for Fleet Advantage, a Fort Lauderdale, Florida-based provider of truck fleet business analytics, equipment financing and lifecycle cost management.
Fleet Advantage reported selling 229 used trucks in September valued at $6.2 million. For its first fiscal quarter of July-September, the company sold more than 400 off-lease used trucks at a value exceeding $10 million.
On dealer lots…
Rush Enterprises (NASDAQ: RUSHA) had a similar experience. The nation’s largest chain of new and used truck dealers sold 2,055 used commercial vehicles in the third quarter, 10% more than in the same quarter last year. More important to CEO William “Rusty” Rush was the higher profitability.
“The used truck market took the hit in March,” Rush said on the company’s third-quarter earnings call with analysts Thursday. “Boom, you lose 10, 12% on everything. Then you roll into Q3 and the market trends back up. Fortunately, we captured some of it.”
Rush’s profit margin per vehicle doubled from 6% in the second quarter to 12% in the third. Its typical used truck margin is 8%. Rush primarily sells International trucks from Navistar International Corp. (NYSE: NAV) and the Peterbilt brand from PACCAR Inc. (NASDAQ: PCAR)
Manufacturer takes losses on used trucks
PACCAR reported record sales of used trucks in the third quarter. But even with premium pricing compared to competitors, the parent company of Kenworth Trucks and Peterbilit Motors lost money on each sale.
“Robust used truck sales led to a reduction in used truck inventory,” Harrie Shippers, PACCAR president and chief financial officer, said Wednesday on the company’s third-quarter earnings call with analysts. “Like in the second quarter, results on used trucks were unfavorable. It was nice to see that the used truck inventory came down during the third quarter.”
The analysts’ view
September saw substantially higher volume than August, and pricing was generally higher, especially for newer trucks, according to J.D. Power Valuation Services. Prices rose an average of 6% each month in the third quarter.
“Consumer spending and inventory buildup remain the main drivers of freight volumes. Inventory buildup should eventually scale back as corporate targets are met, but consumer spending should remain strong assuming there are no major disruptions to economic conditions,” J.D. Power analyst Chris Visser wrote in a company blog.
The used truck market was declining before the onset of the COVID-19 pandemic.
“Interestingly, it is how the economy is recovering from COVID-19 that seems to be driving the surprise gains in the used truck market,” ACT Research Vice President Steve Tam said. “Consumers have pivoted from spending on many services to spending more on goods, and that has led to a very strong freight market and tightening capacity.