The market for heavy-duty used trucks improved slightly in December, according to a monthly analysis by Penton, an information services company.
Penton’s stability index, which measures resale price capacity based on the movement of market prices and activity, inched up to 99.5 from 97.74 in November.
Though average used truck values were flat from November, volume, or inventory, dropped 24 percent, which contributed to the improved outlook.
Analysts attributed the decline to a year-end rush by trucking companies to restock fleets and offset expenses accrued over the year.
“December is the number one sales month for retail of new and used trucks, and there are ton of trade-ins in December,” Kenny Vieth, president and senior analyst of research firm ACT, told Trucks.com.
“There’s a tax-buying impetus to have something to write down against profits at the end of the year,” Vieth said. This includes the small owner operators who predominantly make up the used truck buyers’ market.
But the exact correlation between used truck sales and inventory is hard to define.
“Buyers of new and used are so different, and timing can really throw things off,” Eric Starks, chairman and chief executive of trucking research firm FTR Transportation Intelligence told Trucks.com.
“We would like to see used start to pick up, and it usually does once freight market starts to move in March,” Starks said.
There was also an unusually high uptick in orders for new trucks reported by manufacturers this January.
The pace of big trucks orders over the past three months represented an annual equivalent of 248,000 units. Last year the U.S. and Canadian market contracted to 216,000 sales of Class 8 trucks after reaching 278,000 in 2015, according to FTR.
The market for new trucks improved last month, according to ACT research. Preliminary order data for trucks in Classes 5 through 8 trucks climbed to a thirteen-month high of 45,300 vehicles, a 27 percent improvement compared with January 2016.
“Order levels now are probably replacement level, which suggests things are balanced – not reducing or increasing,” Starks said. “I would say things are OK.”
This robust activity will trickle down into the resale channel over the next 12 months.
“The big fleets are in the market placing long term orders, which makes optics of strength for January tricky because we don’t know if those orders are for now or in the fourth quarter,” Vieth said.
“As new model year [trucks] are released starting in the beginning of the year, more of the older models will enter the resale channel to ramp up the activity,” Jessica Carr, senior industry analyst for Penton.
Volume from auction houses picks up more rapidly in February.
But it will take time for these orders to turn into deliveries and eventually sales.
The 240,000-unit annualized truck production rate evident in January was a lot of “green shoots,” Vieth said. But it will take about six to 12 months before “bearing fruit.”
As such, the release of off-lease vehicles does happen all year long, and it’s usually around a 1:1 ratio, he said. If companies are increasing or decreasing their fleet size, the number of new trucks purchased could move up or down slightly.
However, not all companies are alike in their methodology regarding trade-ins.
The timing of sale and offload is not always the same, Starks said. Some companies acquire a new truck, but before moving the secondary truck, look at residual values.
They want to know the current price they can get, and if it’s too low, they consider holding until it bounces back, he said. Companies will even weigh whether they can put a driver in until the market sees an improvement in pricing.
Pricing variation is another indicator of health in the market.
“The only thing we know is when the stock [of used equipment] gets low, then the supply demand behavior kicks in and the prices go up. It’s a welcome sign to see low inventories because there’s no oversupply of equipment and trucks sitting on the fence doing nothing.”
By brand, there was little variation in average transaction pricing among Freightliner, International, Hino, Peterbilt and Volvo with the exception of Kenworth which spiked almost 10 percent.
The increase in transaction price depends on the mix and could indicate the strength of the vocational truck market, which Kenworth participates in heavily.
There has been an increase in demand for more vocational vehicles in the Louisiana region, which serves a demographic that generally demands this type of vehicles, said Sam Allison, used truck sales manager for Kenworth of Louisiana in Gray, La., one of seven locations in the state. As the cost of oil and raw materials have gone up, so has the cost of the equipment.
Winter weather does have a hand in preventing some trucks from increasing mileage, which helps keeps their value, Allison said.
Although Kenworth Louisiana continues to operate normally throughout the winter as it’s situated along the I-10 corridor and experiences higher temperatures, general freight slows in December weather as it’s hard to get around the lower 48,” Allison said. “Seasonal hauling for general freight and the majority of the holiday starts in July.”
Average transaction prices will remain relatively close to December, with a few bumps depending where volume lies in terms of class and vehicle age, Carr said.
Historically, average age for the overall market irrespective of class does not drop until closer to March when the new model year trucks are released, which pushes overall average pricing up, she said.