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August 30, 2010 8:45 AM, EDT

Used Truck Sales, Pricing Strong as Firms Move to Renew Fleets

By Rip Watson, Senior Reporter

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

Used truck sales and prices are climbing steadily as fleets hunt for cost-effective alternatives to new trucks, according to a new research report and industry officials.

A dealer survey report from Americas Commercial Transportation Research Co., Columbus, Ind., found prices for used trucks increased by 22% in July, compared with the same month a year ago, and 9% since the start of the year.

“Dealers are adding one [thousand] or two thousand dollars to the prices, and customers don’t seem to be batting an eye,” said ACT Vice President Steve Tam. He attributed a 54% jump in used truck sales this year to recent gains in freight volumes.

Used truck prices now are at least 10% higher than they were before the recession began, using a baseline of a good-condition used tractor with 400,000 to 500,000 miles traveled that is four or five years old, Tam told Transport Topics.

Today, that truck is a relative bargain at about $40,000, compared with middle-to-high $30,000 range two years ago, he said. By comparison, a new tractor, on average, costs about $117,000, Tam estimated.

Dealers and other industry officials told a similar story.

Bryan Boyd, owner of Boyd Truck Center Inc., Tulsa, Okla., said used truck prices on the wholesale market, meaning prices for dealer-to-dealer transactions, have climbed 10% to 15%.

Retail sales also are strong, he said.

“I had a group of 40 trucks that I couldn’t give away for the last six months,” Boyd told TT. “In the last week, everyone was fighting over them, and now they are gone.”

“Normally, we would cut prices in summer, but not this year,” said Marty Crawford, president of the Used Truck Association, Kansas City, Mo. “I’ve talked to a lot of dealers who have sold trucks recently, and the ones they’re buying to replace the units that are sold are costing them more money — at least 10% more.”

He said pricing for late-model, low-mileage trucks was growing, while prices for older trucks were holding steady.

Timothy Schaeffner, a Banc of America Leasing vice president in Chicago, put it another way, saying used trucks are bringing the same prices in 2010 they sold for last year instead of losing about 10% of their value, which they typically do in a year.

Karen Braddy, general manager of Manheim Specialty and Heavy Trucks & Equipment. Atlanta, agreed.

“We have noticed the used market remained pretty strong for us,” she said, reporting a 20% rise in sales this year, with 12% higher sale prices.

“Dealers still want to be in remarketing,” she added. “When OEMs decrease output, [dealers] still have to put bread on the table, so they have shifted more and more to medium- and heavy-duty used trucks.”

The surge in sales and prices has come at a cost — a steep drop in the number of trucks on many lots.

Crawford estimated used Class 8 inventory is at least 60% smaller than it was at this time last year.

“There is a pent-up demand for trucks,” Crawford said. “The average age of trucks has continued to get older. Fleets are at a point where they have to replace equipment. They will start with late-model used, and then they will have to go into new trucks.”

Used truck sales will stay strong until the gap between new and used truck prices shrinks at least $10,000, which could be enough to stimulate new truck sales, Tam said.

While business is better, Boyd and Braddy also cautioned that the market isn’t strong in historical terms.

Class 8 used truck sales dropped 21% from June to July, ACT’s survey found. Tam attributed that change to reduced inventory in the wholesale and auction market, but he said he expects the long-term trend will be positive.

“There seems to be a real problem finding the right equipment,” Boyd said. “Miles are a stumbling point. We are getting a lot of older models. Lower-mile models are bringing premium dollars — if you can find them.”

“There are signs of improvement, but there is still a lot more to do,” Braddy said.

She said she believes the overall trucking market will not truly recover until 2011 because of weak housing, construction and consumer markets.

“I am hoping we won’t wind up with a double-dip recession,” Boyd said. “I hope that dealers who are paying 10% to 15% more for inventory don’t get hung up with a drop in values.”

Business “is still not at not pre-recession levels,” he added. We’re still a long way from that. I’m not sure when we will get to that again.

“We are in a positive mode as we speak today because we are selling trucks,” Boyd said. “Next week, we may be crying the blues.”