Pricing down, but sales trending up for used trucks

While used truck sales are improving, there is still more supply than demand, keeping downward pressure on prices. (Photo: Shutterstock)

While used truck sales are improving, there is still more supply than demand, keeping downward pressure on prices. (Photo: Shutterstock)

Used-truck prices are down slightly this year and some fleets looking to trade in their vehicles may be finding the residual value they expected to get when they acquired these trucks in 2013/14 are just not there right now.

“They’re right if they are basing their expectations on what they got in prior times,” Steve Clough, president of Arrow Truck Sales, explains to FreightWaves, adding that some of the lower values may simply be individual dealer decisions. “There are a lot of dealers who got stuck with excess inventory by putting too high a value on trades [previously]. I think the [current] values, long-term, are where they need to be.”

Clough notes that pricing is down about 2% “beyond normal economics,” but most of a major price drop in used trucks has already occurred, as prices plummeted in 2016 to an average of $53,900, according to J.D. Power Valuation Services. Clough says pricing has remained mostly stable in 2017.

“Based on our sampling of the used truck market, sales volumes are improving on both a year-over-year and year-to-date basis. Values remain below comparable periods in 2016, but are narrowing the gap,” Steve Tam, vice president of ACT Research says.

Tam says ACT believes the supply of used trucks is declining but because it remains higher than demand, there is downward pressure on prices right now. In August, Class 8 same dealer sales volumes increased, posting an 11% retail sales gain and 19% wholesale gain. Pricing fell 3% from July. The sales volume gain followed consecutive months of decline.

“Increased new truck sales in 2014 and 2015 has the potential to increase the flow of trucks into inventory starting in 2019, but the impact on inventory will depend on demand dynamics at that time,” Tam says.

Following strong new truck sales years in 2016 and 2017 with another strong year forecast for 2018, the used-truck industry could potentially face another glut of vehicles in 2019 and beyond, similar to the 2010-2014 timeframe.

“The key is whether or not trucking companies are buying to increase the size of their fleets (no negative impact on used inventories) or simply replacing aging equipment,” Tam explains. “If the latter is the case and the flow of trucks into used inventory equals the rate of new truck sales, used inventories are likely to expand. We do see this as a factor in 2018, but perhaps coming [more] into play in 2019.”

Tam also notes that 2017 is expected to be a record year for U.S. exports of used Class 8 tractor, which is helping control the inventory of such units. Clough mentions that the fallout from the ELD mandate could also impact inventory levels.

“The ELD impact could drive up used demand as more trucks are needed [due to a capacity decrease],” he says, “but conversely, some of the smaller guys could choose to leave the industry, and there are some that will.”

Another factor that is impacting the market is current new-truck pricing.

“The current favorable new truck pricing environment has resulted in some traditional used truck buyers purchasing new equipment instead,” Tam explains. “Many of those who have not made the leap to new have meaningfully shortened their trade cycles, reducing the average age of their equipment, which will afford them more latitude as to the timing of their next purchase. If they choose to extend their trade cycle or age their fleet, that could result in soft demand. If that lines up with a period of excess supply, it could be challenging for the used truck market.”

Looking ahead to 2018, Tam expects increasing volumes for used supply and continued pressure on pricing. “By which we mean that prices are expected to remain flat at current levels,” he says. “From our perspective, 2019 will probably bring a greater flow of equipment into the market than needed, increasing inventories and exerting moderate downward pressure on pricing.”