Used Class 8 truck prices are soaring, with October costs up 54% from a year earlier. Prices are also up 36% year-to-date, according to a recent report by ACT Research.
Steve Tam, vice president of ACT Research, said the average used retail price for a Class 8 was $72,200 in October, up from $46,900 in October 2020. The majority of models are sleepers, he said.
In the auction world, prices sometimes exceed the cost of a brand new “vanilla” Class 8 tractor, which is about $140,000 per ply unit, Tam said.
“This is the first time I think the industry has ever experienced this,” Tam said.
Compounding the problem is the lack of available semiconductors, is used in large quantities in new tractors. They have supply limitations slowing production of new Class 8 trucks;and is perhaps the biggest reason for the momentum in used truck prices.
With a shortage of semiconductors and demand for trucks, Avery Vise, FTR’s vice president of trucks, worries that the transportation industry will have a new problem to add to its list work restrictions, truck parking and properties for LTL terminals.
“We may see the truck shortage as a bigger problem than the driver shortage [in 2022]Vise said. “We’re already seeing it in pockets.”
Few doubt that larger for-hire carriers will incur additional payments due to market conditions, but smaller fleets and owner-operators will likely face financial situations that could be more difficult to navigate if spot prices fall.
Sharp costs and risk of deeper debt
Lenders would normally prevent smaller players from borrowing too much on used trucks, but market conditions allowed the money to flow.
“Financial entities are quite bullish,” Vise said. “However, as the situation continues to tighten – and it will – it becomes a bigger issue.”
Consumer spending is not likely to continue as it is now in the long term, Vise said, and that will make financing more difficult for smaller fleets.
Buyers could incur higher costs and more debt when purchasing used truck beds. Most of the used truck buyers tend to be owner-carriers or micro-carriers, both of which are particularly vulnerable to high debt and shrinking profit margins. They’re generally more leveraged because they tend to lack working capital, Vise said. When diesel prices rise, smaller haulers and owner-operators tend to suffer because they have to pay their fuel bill immediately, he said.
“We may see the truck shortage as a bigger problem than the driver shortage [in 2022].”
Avery Viz
Vice President of Trucking at FTR
The cost of used trucks is so steep now, an official from the Owner-Operator Independent Drivers Association said buyers should be careful about going into too much debt.
Todd Spencer, President and CEO of OIODA, said that while spot prices keep independent drivers flush with monthly cash, for now, things could change. Bubbles have burst before in trucks, he said.
“That’s the reality,” Spencer said. “That’s where you make a business decision. In the short term, we might do well. But in the long term? Basically, don’t overextend ourselves.”
There are no signs that the upward pressure on used trucks will ease any time soon. In a situation that doesn’t bode well for prospective buyers, no one seems sure about the size of the North American used truck inventory.
“You can’t get them to stand still long enough to be counted,” Tam said.
Vise said he hears that some fleets don’t have a truck to put an enlisted driver. This makes fleets more willing to hold on to their trucks, putting upward pressure on prices.
It also means smaller carriers and owner-operators will have a harder time than larger fleets adding capacity. And it could prevent the company’s drivers from going out on their own as owner-operators solely because of used truck prices, Vise said.
Buy used truck dealer
While some fleets face financial challenges in acquiring trucks, others benefit from the seller’s market.
Ryder mentioned it on its last earnings call that its fleet management division made a pre-tax profit of $186 million, up $170 million from the previous year, and $93 million came from higher profits on used vehicle sales. Ryder CFO John Diez said tractor revenue was up 32 percent and truck revenue was up 27 percent over the second quarter.
“Higher sales revenue reflects significantly improved market prices,” Diez said.
However, the cap on new truck production due to supply chain issues has spilled over into the used market, reducing Ryder’s inventory of used trucks.
Used sales numbers, inventories are down due to supply chain constraints
Ryder used vehicles sold and used vehicle inventory by quarter
Penske reported during earnings call on October 27 these revenues increased in part due to demand for used trucks.
The push for the business is that OEMs are behind on new trucks by about 13 months, CEO Roger Penske said on the call. This shortage is compounded by increasing demand for fares.
“And that will drive this business for the next 12, maybe even 24 months,” Penske said. “And that’s what’s driving up used truck prices because today, most fleets can’t get their new trucks right now. So they’re using their old trucks, maybe another five to six months. And that’s also helping drive used truckload of value, but I don’t see it slowing down.”
“You can’t take [used trucks] to stand still enough to count them.’
Steve Tam
Vice President ACT Research
Fleet executives have also noted that they took advantage of higher market values and sold older equipment.
Steve Bruffett, CFO of Schneider, told investors on an Oct. 28 investor call that the company “took advantage of the strong used equipment market in the third quarter.” Derek Leathers, CEO Wernersaid in a call the same day that pricing in the used truck sales market “was better than expected” in the third quarter, with earnings of $15.3 million, up from $13.5 million in the second quarter.
Used truck buyers will eventually become used truck sellers. Used equipment will continue to be delivered to smaller and smaller fleets as they age and prices drop. When the price is high to begin with and the market remains tight, however, it will remain elevated as it is resold.
JD Power Research seems to bear this out: The October average retail price for 2017 bedroom models was $72,682 and 2016 models were $55,904. In October 2020, the average sleeper was $38,734.
“It flows through the whole process,” Tam said.