Higher And Higher: Used Truck Price Inflation Shows No Signs Of Abating
By Alan Adler of FreightWaves,
The sky’s the limit. Now find the sky.
That is the ongoing story of used truck prices at both auction and retail for the first 10 months of the year. J.D. Power Valuation Services pegs the year-over-year increase in auction prices at 89.9% — with the gavel dropping on month-over-month increases of 7%.
“The sense of urgency is as strong as ever in the auction lanes, with buyers continuing to pay record pricing for desirable trucks,” Power said in its monthly Guidelines newsletter covering October.
Power tracks a group of 4- to 6-year-old trucks. Not only are year-over-year prices stratospheric, but they are running 71.2% ahead of the same period in 2019.
Two examples from the recent Ritchie Brothers auction in Orlando, Florida, point to the inflation caused by a practically nonexistent supply of quality used trucks assigned for auction. A 2017 Freightliner CA125SLP Cascadia sleeper truck tractor sold for $112,000. And a 2019 Volvo VNL760 sleeper truck tractor brought $105,000.
Huge backlogs and long lead times
Huge backlogs and long lead times to get new trucks because of a shortage of semiconductors and a host of other parts have stretched delivery times to a year from the date an order is placed.
“Many of the fleets we have spoken to are in an excess-capacity situation” with no one to drive trucks they do have, Steve Tam, vice president of ACT Research, told FreightWaves. “That said, they have equipment on order and are frustrated with the delivery delays. Some fleets who are not traditionally used truck buyers are turning to the secondary market to find equipment.”
Combining a surge in former company drivers getting their own trucking authority through the Federal Motor Carrier Safety Administration and the scarcity of low-mileage used trucks, prices have nowhere to go but up.
“There is no question that a significant portion of the incremental demand for used trucks has come from new entrants, many of whom are either single truck operators or small fleets,” Tam said.
The average sleeper tractor sold at retail in October was 73 months old, had 450,478 miles and brought $82,588 — 88.3% more than than a year ago. The age is well off the record of 96 months that the average used truck hit in 2015.
Is a permanent change ahead?
“Since those trucks are being kept in service and not resold, our used truck sales data does not yet show a notable change in average age,” Chris Visser, J.D. Power senior analyst and commercial vehicles product manager, told FreightWaves.
“In the first 10 months of this year, sleeper tractors sold [at] retail averaged 71 months old, compared to 68 months in the same period of last year and 70 months in 2019.”
Could the current shortage caused by a lack of trade-ins lead to permanent change in the definition of a quality used truck, typically 4 years old and 400,000 to 450,000 miles?
“In the used truck data we collect, we have seen the average age of Class 8 trucks sold go from a cyclical low of 74 months in October 2020 to 83 months in August 2021. It ticked down in September to 80 months,” Tam said. “We believe that it is a temporary situation that will begin to reverse itself as more new trucks become available.”
Watching the ’19s
Power is watching to see what will happen when 2019 models begin to show up in auctions in greater numbers.
“Model-year 2019 deliveries were about 30% higher than model-year 2018 deliveries,” Power said in Guidelines. “We’ve seen an incremental increase in the number of 2019s sold in recent months, but demand for these trucks is still outstripping supply.”
Lower auction volumes in October showed higher prices across the board with the newest trucks, 2018 models, commanding 1.5% more. By contrast, 2014 models brought 11.5% higher prices. The three years between averaged 8.9% to 11.1% higher prices.
On a retail basis compared to September, October’s average pricing was:
Model year 2020: $134,178; up 2.6%.
Model year 2019: $107,725; up 3.3%.
Model year 2018: $86,401; up 1.3%.
Model year 2017: $72,682; up 3.8%.
Model year 2016: $55,904; up 0.3%.
How much risk is there in overpaying for a used truck at today’s prices? It is a hot topic of conversation, Tam said. Finance companies are requiring bigger down payments to protect themselves.
“Regardless, when freight growth stalls, there will be an increase in repossessions,” Tam said. “The silver lining is that there will be fewer than there would have been without the proactive efforts.”
Added Visser: “Trade-ins are also worth more than they had been, so this factor combined with substantial down-payment requirements means the number of truck owners underwater on their rigs might not be critical when the correction happens.”