A variety of industry business practices during the 1990s set in motion what turned out to be a valuation maelstrom for the Class 8 used-truck market between 2000 and 2004.
As the graph below illustrates, the average price of a three-year-old used truck decreased steadily during 2000 and 2001. Values started to rise again in the first quarter of 2002, and gained substantial strength as the October 1 deadline for spec'ing new vehicles with EPA-'02 emissions-compliant engines neared.
Used-truck values remained healthy during 2003 because the number of trade-backs declined significantly as fleets held onto equipment with pre-'02 engines. Today, values continue to be buoyed by a lack of inventory and strong demand, especially for low-mileage, late-model equipment.
The vehicles included in this analysis shared the following characteristics: 12-14 liter engine at 435hp.; 10-sp. transmission; large hi-rise sleeper; full aerodynamic package; mid-level interior; and an average of 125,000 mi./yr.
As we entered the new millennium, inventories, which were already at overcapacity, continued to grow as record numbers of guaranteed factory buy-backs poured in.
A declining economy aggravated the situation, and when combined with rising fuel and insurance costs, led many fleets and owner-operators to declare bankruptcy, thus adding to the already overflowing pool of used equipment. The result was an estimated surplus of between 75,000 and 200,000 used highway tractors.
And help was not just around the corner. Lending institutions, which had to manage their own burgeoning inventories of used trucks from defaulted loans, exited the market in mass; those that did stay tightened credit requirements.
At the same time, an inventory of new trucks with reduced prices and aggressive financing awaited highly qualified buyers, drawing them away from the used-truck market.
Auctions became a popular way to dispose of used equipment, and tended to depress used-truck values. Regardless of its condition, many buyers came to believe that a used highway tractor was only worth yesterday's auction price.
By now the lending institutions, not the market, were dictating the value of used equipment. Declining advances — sometimes no more than 70% of the dealer's invoice price — forced dealers to lower what they would pay for a used tractor, just so they could obtain financing.
Things began to change in 2002 when it became clear that truck OEMs could not meet the volume of orders for new trucks. Consequently, an influx of used-truck buyers snapped up any available low-mileage, high-quality tractors to avoid buying new equipment with '02-compliant engines. At the same time, many fleets deferred trading in equipment to retain their pre-'02 engines. This trend continued into 2003 as the economy began to improve.
As the second quarter of 2004 ends, the used truck marketplace is on a high ride indeed. Fretting over high wholesale prices, dealers claim — with a hint of hyperbole — “These prices were my retail selling prices six months ago.” But in the next breath they talk excitedly about how used-truck values have dramatically improved.
