Total Class 8 Fleet Dips in Third Quarter

This story appears in the Nov. 30 print edition of Transport Topics.

The heavy-duty U.S. truck fleet contracted slightly in the third quarter, shrinking back to its size in the first quarter of 2009, but used-truck sales volumes strengthened in the quarter, according to a Nov. 17 report by R.L. Polk.

The total U.S. Class 8 fleet closed the third quarter at 3.63 million units, down from 3.64 million vehicles on June 30, and 3.65 million at the end of 2008, according to Polk & Co., which is based in Southfield, Mich. The decline between the second and third quarters equaled 0.2%.

The Polk report said new registrations of used Class 8s hit 83,000 units in the third quarter, an improvement of 77.2% over the same time in 2008, a sign that despite low new-truck sales, the rate for scrapping old trucks was low.

Meanwhile, used-truck deals in the third quarter were 68% of the total Classes 3-8 market, while at the same time last year they represented just 49% of the market, Polk said. Dealers and analysts said a firming used-truck market could lead to increased sales and, ironically, possibly more fleet bankruptcies as lenders are more willing to repossess vehicles.

“We’re seeing a lot of good, clean used trucks coming out of lease and put on the market at very, very good prices,” said Gary Meteer Sr., Polk’s commercial vehicle account director. “Dealers don’t want to carry the covering charge for inventory.”

The president of the national Used Truck Association said members of his group are doing more business in Class 8 trucks, but prices for those vehicles have not yet improved. Analysts speculated that a stronger used-truck market should lead to increasing new-truck sales, better cash-out prices for motor carriers looking to sell, but also more vehicle repossessions for trucking companies that have been carried by worried lenders.

“The used-truck market has bottomed out and started back up,” said Marty Crawford, a senior account manager with Arrow Truck Sales in Conley, Ga., and president of UTA.

“Everybody’s sales were starting to increase,” Crawford said of the tone of UTA’s annual meeting in San Antonio, Texas, in early November. “The feeling was that activity was going up, even if prices are still down.” He characterized pricing as “anemic.”

Small fleets are buying five to 10 trucks at a time, Crawford said, and they are attracted by the ability to buy three good used trucks for the price of one new 2010 truck, which will feature a costly engine with new federally mandated emissions technology.

Crawford said he thinks used-truck pricing on the heavy-duty side will rise over the next six months, and that used-truck sales over the next 12 to 18 months “will be the payoff for us after what happened over the last 24 months.”

If the used-truck upswing continues, it could hit fleets in several different ways, market watchers said.

“For the larger fleets, they’ll be able to sell their used equipment into the secondary market. That’s been a problem for fleets wanting to buy new trucks,” said Eric Starks, president of research firm FTR Associates in Nashville,

Ind. “This is one of the most important things we’ve been telling clients: Pay attention to the turn in the used-truck market,” Starks said.

Kyle Treadway, owner of Kenworth Truck Sales in Salt Lake City, said that he recently has enjoyed higher used-truck sales, and agreed that could be the key to better new truck sales to follow.

“Used-truck prices have hit a trough, so people aren’t waiting ‘one more month’ to get a better deal. Former new-truck buyers are choosing used vehicles for two reasons: They’re skeptical of the new 2010 technology, and it’s easier to handle the upfront financing costs on a used vehicle,” Treadway said. As chairman of American Truck Dealers, he said he has heard of similar experiences from other dealers.

Treadway said better used-truck prices should let healthy fleets “turn over their equity into purchasing new equipment.”

Higher used-truck prices could affect fleets in either a good or bad way, said Lana Batts, managing partner of Transport Capital Partners.

She said fleet owners thinking of selling should soon get better prices, but the other half of the equation is that repossessions and bankruptcies might rise.

Owners who have held on for months or years “can wait for a better price and get it, once there is evidence the prices on the trucks they own has improved,” Batts said. On the other hand, banks with overdue loans haven’t pushed their borrowers because truck valuations have probably been well above actual market rates for used equipment, so a bank calling an overdue loan would have to realize a very large loss.

The key moment, she said, will come when book valuations with lenders are equal to market values for used equipment. “At that point lenders will pull the plug on long-delinquent loans and bankruptcies will rise,” Batts said.