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Shakier outlook should still support used truck market

June 27, 2012

Despite more month-to-month volatility in used truck pricing, the overall increase in economic uncertainty should continue to support demand for used trucks – particularly as fleets remain leery of investing in capacity made more expensive due to exhaust emission control technology.

“There’s no question that when you’ve got more economic uncertainty mixed with the higher sticker prices for new equipment that there’s more incentive to buy used models,” Steve Tam, VP-commercial vehicle sector for consulting firm ACT Research Co., told Fleet Owner.

“Even though [used truck] prices are showing volatility on a month to month basis, they continue to show solid growth for longer-term comparisons,” he added. “We expect that pattern to be the norm though 2012.”

ACT’s latest data indicated that the average retail selling price for a used Class 8 truck dropped to $48,643 in May this year, down 6% month over month, but still 3% above the average price posted during May 2011. On a year-to-date basis, Tam added, used truck prices remain 13% above last year’s pace.

An uneven freight market and growing reluctance by carriers to add capacity should also fuel demand for used trucks versus new models.

For example, in the Second Quarter 2012 Business Expectations survey conducted by Transport Capital Partners (TCP), 71% of those carriers polled said they expected to add little or no capacity, up from 65% in the first quarter this year.

“Carrier confidence in the economy to generate volumes and compensatory rates is dropping as the industry is certainly bearing the burdens of more federal regulation, scarce drivers, an anticipated jump in 2013 taxes, and hearing more pundits ponder recession,” noted Richard Mikes, a TCP partner specializing in finance and economics.

More carriers (51% of those polled) also believe that they are not getting an adequate return on investment (ROI) for their equipment compared to the same period last year (47%). This higher percentage of carriers that find the ROIs to be lacking might explain why carriers are unwilling to add capacity, noted Lana Batts, another TCP partner.

“This, coupled with adverse driver dynamics – i.e. shifting demographics, CSA [The Federal Motor Carrier Safety Administration’s Compliance Safety Accountability program] putting pressure on drivers, raising turnover and pay rising, – is similar to causing carriers to die by a thousand cuts,” she said.

ACT’s Tam pointed out that these larger issues are impacting equipment buying decisions, as orders for new equipment have been declining for several months while demand for used models remains relatively strong – leading some carriers to engage in what he terms a “stop gap” vehicle replacement strategy.

“If you’ve got trucks with 650,000 miles on them and are replacing them with models with 500,000 miles on them, you’re giving yourself a little more time before you have to buy brand new equipment,” Tam explained. “But at some point, however, the incremental maintenance cost will become too much to make such a strategy work.”

Yet winning a delay in significant fleet investment costs may be critical as many carriers, according to TCP’s poll, are hoping the increasing shortage of trucking capacity will convince more shippers to engage in dedicated contracts – giving them the steady freight volumes and rates they need to investment in newer, pricier equipment.

“Dedicated is clearly a win-win option for shippers and carriers over the long run and is rising in popularity with our carrier contacts, as well as looking for acquisitions,” TCP’s Mikes noted. “It allows the current low interests rates to be locked-in, gives shippers a custom and controlled base line capacity not subject to the spot market over 5 to 7 years, and removes the uncertainty of steady volumes to justify an investment.”

About the Author

Sean Kilcarr | Editor in Chief

Sean previously reported and commented on trends affecting the many different strata of the trucking industry. Also be sure to visit Sean's blog Trucks at Work where he offers analysis on a variety of different topics inside the trucking industry.

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