Used Truck Sales Stabilize as New Trucks Struggle

September 12, 2016 by Tiffany Hsu, @tiffkhsu

Heavy-duty truck sales have been on the skids.

Demand for goods transport was soft this year. And with the presidential election looming, fleet managers and owner-operators are hunkered down in wait-and-see mode.

Carriers booked orders for 14,200 trucks in the heaviest Class 8 weight segment in August, ACT Research Co. reported. That’s a 29 percent decline from the same month a year earlier.

“In essence, we have too many new trucks chasing too little freight — companies were adding trucks to their fleets and manufacturers were continuing to build while freight growth was elusive,” said Steve Tam, vice president of the commercial vehicle sector for ACT.

But for the first time in months, the market seems to be stabilizing. As dismal as August’s new truck sales numbers turned out, they were still up 37 percent from a far worse July, when dealers sold just 10,358 units, ACT Research said. That was the worst monthly showing in more than six years.

And while dealers are still struggling to move rigs fresh out of the factory, they’re now seeing a resurgence of interest in used trucks.

“There’s just a higher percentage of people coming down off the fence on the side of used trucks,” Tam said.

At worst, sales of pre-owned Class 8 rigs are expected to dip 5 percent to 10 percent this year compared with last year, he said.

New truck sales are forecast to fall 15 percent to 20 percent. Truck manufacturing is expected to sag by an even larger 25 percent to 30 percent, he said.

Daimler Trucks, owner of the rival Freightliner brand, cut its annual forecast for total industry sales in the U.S. by 15 percent earlier this year, saying its truck sales would be “significantly below” the prior year’s sales.

Slowing truck sales have led to layoffs by manufacturers. Daimler said in June that it would cut 1,240 workers in North America, while Volvo said it let go 800 employees at a Virginia truck plant in two rounds of layoffs this year.

Registration of heavy-duty trucks in North America dropped 14 percent in the first six months of the year compared with the same period a year earlier, according to Volvo Group. The Swedish truck and heavy equipment company said in July that it expects 240,000 total registrations in 2016 compared with last year’s 301,700 registrations — lowering its previous forecast by 10,000.

One problem is that truck sellers are coming down from a robust 2015, when sales hit their highest point since 2006. Consumer spending was strong, triggering a freight surge.

But holiday spending was weaker than anticipated, leaving shelves still stocked and retailers holding extra inventory. Producers — and the trucking industry that relies on them — were left in the lurch. Many carriers discovered they had purchased too many big rigs.

“The economy is still in a macro sense incrementally improving, but certain sectors are lagging, and manufacturing is one of them,” said Chris Visser, senior analyst at ATD/NADA Official Commercial Truck Guide. “There’s not as much need for raw and partially completed materials to be moved to inventory as in previous post-recovery years.”

As the volume of freight loads wanes, and as the bumper crop of trucks sold in recent years makes its way to the pre-owned market, many carriers are shunning expensive new rigs.

“It’s an unfortunate confluence, that manufacturing is pulling back at the same time that the volume of trade-ins is increasing,” Visser said.

But for used-truck merchants, who also felt the strain of the slow freight market, the timing is a godsend.

Volume sales of used Class 8 trucks have been volatile month to month, slumping 8 percent from June to July after surging 15 percent from May to June and diving 18 percent the previous month, ACT Research said.

But the year-to-date figures appear to leveling out, and “the overall trend is on an upward trek,” according to ACT’s Tam. Dealers are also reporting an upswing in customer traffic, he said.

And prices for used trucks at auction — a popular purchasing venue for fleet owners — are currently declining less than 3 percent a month, compared with nearly 5 percent a month in the second half of last year, Visser said.

That’s near a historically stable depreciation rate of roughly 2 percent, he said.

Used trucks are being sold more cheaply than in the past, experts said. Compared with last year, 3- to 5-year-old trucks are bringing in 16 percent less revenue this quarter, according to Visser.

But analysts said the tepid truck buying environment likely won’t leave a permanent mark on the industry. The logistics industry tends to avoid large investments during the uncertainty of presidential election seasons, picking up purchasing after the vote is done.

And major carriers will likely start buying new trucks soon — if not to expand their fleets, then to balance out the vehicles that become unreliable as they age, betting that the lower maintenance costs of a fresh truck will outweigh the discount on a used rig.

When Daimler Trucks unveiled its redesigned 2018 Freightliner Cascadia at an event in Colorado this month, the larger carriers signaled they were in a buying mood.

Jerry Moyes, chief executive of Phoenix-based Swift Transportation Co., told the carrier planned to order 2,500 of the new Cascadias next year, spending about $300 million.

David Congdon, chief executive of Thomasville, N.C.-based Old Dominion Freight Line, said he plans to purchase 1,000 of the new semi-trucks, which he estimated to be a $100-million tab.

“The large fleets that dictate the majority of the new truck market are going to stick to their existing trade cycles,” Visser said. But “in market conditions like this, small companies that would typically trade in their truck might be holding onto it a bit longer because its price is so low compared to what they thought it was worth.”

And even as some manufacturers scale back production, innovation will continue, especially in the face of new emissions regulations that will require major updates in engine technology and aerodynamic design, Visser said.

The most fuel-efficient configuration of the new Cascadia, for example, achieves an 8 percent mpg gain over the existing vehicle.

“Manufacturers don’t really have much of an option to cut back on research,” he said.

ACT research anticipates that new truck sales will turn positive in 2018, Tam said.

“The downturn in freight is temporary,” he said. “Sales are kind of late coming to the party, but they’ve started to gain a bit of traction in the last few months and will eventually get back to equilibrium.


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