Used Truck Sales Woes Mount as Weak Demand Creates Glut

By Rip Watson, Senior Reporter

This story appears in the Feb. 9 print edition of Transport Topics.

Weak freight demand and an equipment glut continue to cripple the used truck market, and there is little sign of an immediate turnaround, industry experts said.

Fleets are reporting weaker used equipment sales and falling values, and dealers said business is worse than at this time last year. During 2008, the value of used trucks sold to owner-operators fell 27%, according to the National Automobile Dealers Association.

“The used market was doing OK through last summer,” helped by exports and fleets that wanted to run newer equipment, said Avondale Partners analyst Donald Broughton. “Things got worse economically as the year went on, and fleets abandoned any hope of keeping their fleet age constant. Now, they are just trying to survive.”

A four-year-old truck that has 450,000 miles on it that sold last summer for about $37,000 now costs $10,000 less, Broughton said.

The book value of some fleets’ trucks is currently as much as $10,000 more than the sale price for the equipment, he added, compared with a $2,000 gap last year.

“I don’t think [the market] has bottomed out yet,” said Dean Siddle, a vice president at Ritchie Bros., who estimated that sale prices at his company’s auctions fell 25% to 30% last year. “Demand for service has to come up before the valuations are going to come up again.”

Major operators such as Ryder System, Werner Enterprises and Covenant Transport confirmed in recent fourth-quarter earnings reports the market is weakening.

Ryder on Feb. 4 reported a 42% drop in used vehicle sales to 3,200. Sale proceeds per unit rose 5%, a sign that prices stayed firm.

Werner said gains from selling assets, including tractors, fell about 70%. “Carrier failures and company fleet reductions have increased the supply of used trucks for sale, while buyer demand for used trucks is weak, due to the soft freight market and a shortage of available financing,” the company said.

Covenant reported a $9 million charge because the value on its books of the equipment it wants to sell or trade in 2009 is much higher than its actual market value.

And even more equipment could come into the market when YRC Worldwide Inc. integrates its national less-than-truckload businesses in March.

But Marty Crawford, president of the Used Truck Association, said he’s starting to see signs of market life now.

“The used truck market is better now than it was at the end of December,” he said, though it’s worse than February of last year. “Activity should start picking up by late spring. We are eternal optimists. Our [used truck] industry is poised to have an upturn — we expect it in the third and fourth quarter.”

Kyle Treadway, chairman of the American Truck Dealers, said he was detecting similar signals, particularly for aerodynamic equipment.

“We are starting to see a little bit of an uptick in volume,” he said. “The models that get better fuel economy are the ones that are selling. If you can get an improvement over a mile or two a gallon, they’re in demand. The demand for long and tall classic tractors has evaporated.”

Crawford, a remarketer of Volvo and Mack tractors to dealers, said an increase in buying by owner-operators is a sign that companies are hiring more independent operators to haul their products.

Wear and tear and customer demands could help, too.

“We know people are not going to buy as many new trucks as they have in the past because of the economy,” Crawford said. “Trucks are going to wear out, and they have to be replaced.”

Crawford also said fleets have an incentive to run reliable equipment when freight markets are weak so that they can meet their customers’ needs and retain the business.

An economic boost could help as well, said Eric Starks, president of FTR Associates.

“If there is an uptick in the economy and there is no certainty about it, people will be looking for some good deals on used equipment because they won’t be willing to make an investment of $100,000-plus on a new tractor.”

However, Chris Visser, a truck value analyst for NADA, isn’t sure when the market will recover.

“It is totally dependent on the economic turnaround,” he said. “If some of President Obama’s stimulus plan does indeed result in infrastructure projects, you could see some improvement.”

For now, he said prices keep falling. The sale price for three-year-old tractors used by fleets dropped 2.4% a month in NADA’s January and February price guide, worse than the monthly drop of 1.7% last year.

“The whole reason we are in the predicament we are in is the crisis of confidence “said Treadway, a dealer principal for Kenworth Sales Co. “The only way to get out of this is if people start loosening up and start spending.”