The waiting game
Sales and residual values of used trucks are expected to increase in 2010, but not by much and not enough to erase concerns about the health of the market going forward.
Some believe used-truck sales are going to get a healthy bump from fleets across the trucking spectrum seeking to expand and/or replace aging stock with less costly used trucks. However, others think a still-rocky economic environment coupled with lackluster freight and construction demand may convince a big slice of potential customers to beg off buying this year.
“We're basically at the bottom of the market cycle. The question is how long we're going to be stuck there,” notes Terry Williams, editor of Penton's Truck Blue Book, which tracks the used-truck market. “Used-truck inventory is still building and there are literally thousands of trucks out there parked, just sitting around right now. Used trucks are definitely settling down in values, and in particular segments — especially low-mileage, late-model Class 8 tractors — values are starting to even rebound a little bit,” he notes. “The hope is that in 2010 we'll get back to more moderate single-digit percentage swings in value and move away from the double-digit percentage swings we witnessed in 2009.”
Carl Heikel, president and CEO of national used-truck chain Arrow Truck Sales, is much more optimistic about the market. He believes sales and values for used trucks will climb, partly due to the higher sticker price carried by new trucks with the new emissions control systems. As a result, though the supply of used trucks is definitely up, so is demand — and that's helping increase used-truck sales.
“Right now, a three-year-old [Class 8] tractor is maintaining a residual value of roughly 50 to 55% of a new one. That's a definite increase from the 30s we saw in 2009,” Heikel explains. “I'm not sure how much that will improve pricing, because what drives price is supply and demand and both are up. But it will be an improvement over pricing in 2009, which was probably the lowest pricing ever in this market.”
“This is a cyclical industry and always has been,” notes Kyle Treadway, chairman of the American Truck Dealers Assn. and president of West Valley City, UT-based dealership Kenworth Sales Co. “Now, the current valley may be the deepest we've ever experienced, but nevertheless, it's another cycle all the same. We've been here before.”
Yet Treadway says the challenge is going to be sustaining used-truck sales if new-truck sales remain sluggish. “What's in demand in the used market right now is late-model, low-mileage, aerodynamic-style trucks,” he adds. “But we're setting ourselves up for a shortage of those very units in the next sales cycle if we don't have enough new trucks being sold.”
Research firm FTR Assoc., for one, expects Class 8 production to finish the year 47% below 2008 levels, with 2010 production anticipated to be about 30% below 2008 levels.
“There are a couple of major things going on — basically no freight coupled with excess capacity,” explains Eric Starks, FTR's president. “That's just a huge problem to deal with, even with the economy starting to turn around. On top of that, you've got the higher costs for 2010 emissions technology. That means new Class 8 truck sales are not looking good.”
FTR lowered its projection for new Class 8 sales in 2010 from 151,000 units down to 133,000 units, a 12% cut, as demand for truck freight remains weak.
“We also still have a lot of idle and underused equipment out there, so while it may be old in terms of years, its useful life is still quite high,” Starks adds. “From where I sit, we think there's at least a year or two worth of useful life left in much of that underused capacity out there, so there won't be this pressure to go out and replace them with new units.”
