What happens when the used truck surplus hits?
It’s no secret a supply boom is coming for the used truck market. With new truck sales setting records seemingly every week, a major portion of trucking’s current fleet is entering its final months with its first owners. While those in the used truck game may agree regarding the market’s impending truck surplus, opinions remain mixed on what’s coming for pricing and demand.
Freight movement and tonnage totals are up substantially over 2017. Fleets are running every truck they can put a driver in. If the glut of trucks approaching the used market comes in like the tide and not a tsunami, there’s a chance the market may still be standing when supply eventually recedes again.
“I haven’t heard anyone yet too worried about the sky falling. I think most people in the market are realistically preparing for a moderate increase in supply,” says Chris Visser, senior analyst and product manager, commercial vehicles at J.D. Power, and author of J.D. Power’s monthly Commercial Truck Guidelines Report.
Visser ties his cautious optimism to the U.S. economy. He says Class 8 new order deliveries were up 19 percent year-over-year through the first six months of 2018, but that the used market saw no noticeable increase in supply.
“The trucks that have been delivered have all been absorbed,” he says.
And large carriers ordering new trucks aren’t the only ones expanding during the current cycle of economic growth. Second- and third-owner fleets are growing as well and should be able to receive some of the market’s supply. Visser acknowledges pricing isn’t likely to trend upward, but demand should be strong enough to keep 2018 and early 2019 prices from plummeting the way they did following the last order boom in 2014 and 2015.
Don Ake, vice president of commercial vehicles at FTR, shares similar feelings when looking at the year ahead. In a recent FTR State of Freight Webinar, Ake said most Class 8 orders currently being placed are replacement demand and, with a 5- to 12-month delivery lag on new trucks, orders placed in July won’t have any impact on fleets’ capacity until December, at the earliest.
But Bennett Whitnell, advisor at KEA Advisors, says it isn’t fleet capacity or tonnage the used market should be worried about. Whitnell has similar feelings of optimism for the U.S. economy and acknowledges the nation needs more trucks on the road. His concern is drivers.
“These fleets are saying they can’t get people into their trucks, but we are to believe they are still going to keep them all?” he asks. “Why do you need a truck if you don’t have a driver?”
Like Visser, Whitnell says the immediate future for the used market seems solid. Most trucks ordered this spring and summer won’t hit American roadways in 2018. Until they arrive, used truck demand is plenty strong. Whitnell believes fall is a great chance for used truck dealers to clean up.
“You should be ripping the cover off the ball right now,” he says, adding good purchasing and sales decisions made today could help alleviate less profitable deals looming in 2019.
Steve Tam agrees. The ACT Research vice president said at his company’s biannual seminar last month that some used dealers are “lamenting a lack of inventory. We don’t have enough used trucks now and it’s becoming a limitation on sales.”
That will likely change when fleets finally start taking delivery of the new trucks they ordered: Visser says Class 8 orders were up 97 percent year-over-year through June, which means nearly 80 percent of the new trucks ordered during this record-setting year are still on the way.
Barring a spectacular shift in the driver recruiting world, Whitnell says there’s no way the used market will be able to withstand such an uptick in volume.
“Supplier complications have kinked the hose going into the used truck market but that’s not going to last forever,” he says.
When the impending supply boom hits, experts say dealers should be prepared for lower prices. The days of $60,000 to $70,000 average used trucks may be over forever. Pricing a truck to move should take priority over maximizing revenue and margins.
“One of the big things we saw in the last downward cycle was dealers weren’t willing to take the beating and held trucks too long,” says Whitnell. In looking ahead, he adds, “I don’t think this [surplus] will be catastrophic, but it could be if you let it.”