Editorial: Driving Toward Another Crisis in Equipment Values

Even as the trucking industry struggles to climb out of a freight slump that took hold well before the recession hit the other sectors of the economy, a new danger threatens to hurt truck suppliers and buyers for years to come.

From the independent driver who owns a single truck to the largest company fleets, no one can predict what may happen this year and next to the market for new trucks or to the value of used ones.

That situation already has truckers and finance companies reeling. And now it stands to become much worse.

Many owners are already finding their trucks are worth far less than what they owe on loans or leases, leaving them with a big extra expense.

For instance, when refrigerated truckload carrier Simon Transportation filed for bankruptcy protection as it downsizes, it partly blamed “significant disruption in the new and used equipment markets.”

For years now, there have been too many trucks built, as truck makers first gambled on buybacks and a fast-growing economy and then saw freight demand weaken. That left a glut of fairly new used trucks, which undercut demand for new ones.

Now, at a time when a budding economic revival might be expected to lift equipment values and when low financing rates could boost new-truck sales, a federal emissions-reduction deadline is hitting engine makers and scaring off buyers.

That has some fleets keeping old units longer and beefing up their maintenance staffs. Some companies are scouring the used-vehicle market for low-mileage trucks; others are speeding up orders of current-model new trucks to get engines they already know and beat the federal rule change.

This has only exacerbated the plight of the truck makers, who saw their sales in January fall sharply from the same period a year earlier.

Already, the mismatch between truck demand and supply, along with the inevitable drop during recession, has brought sales of new Class 8 over-the-road trucks down to about 140,000 in 2001 from nearly 200,000 in 2000. At perhaps $90,000 per truck, that’s a decline of about $5.4 billion in new-truck sales during the past year.

Underneath that, meanwhile, was billions more in lost values of used trucks, and the impact of those lost values will continue to hurt some carriers. Let’s hope Alan Greenspan is right and that the economy is heading upward.

This story appeared in the March 4 print edition of Transport Topics. Subscribe today.