Used Truck Market Shows Signs of Improvement

June 21, 2017 by Carly Schaffner, @carlyschaffner

Disparate factors indicate the used truck market could be starting to stabilize, according to several reports issued over the past week.

“It’s generally been a little bit better year-over-year,” said Steve Clough, president of Arrow Truck Sales Inc., in a conference call hosted by Stifel Financial Corp. on Tuesday. “There have been small increases and I think in most people’s businesses this seems to bear out.”

There’s been a general improvement in the trucking industry.

The American Trucking Associations’ seasonally adjusted May For-Hire Truck Tonnage Index, which measures demand for freight services, rose 6.5 percent from April, the trade group said Tuesday.

Such freight growth will continue to drive up the demand for more trucks, Clough said.

The index is up 4.8 percent compared with May 2016, the largest year-over-year gain since November.

“Truck tonnage snapped back in May,” said Bob Costello, chief economist for ATA. “One month does not make a trend, but the nice gain last month fits more with the anecdotal reports I’ve been hearing from fleets, at least more so than three straight months of decreases.”

The increase comes partly as freight demand rises in the industrial sector, according to the most recent trucking conditions report from FTR Transportation Intelligence.

“Overall, our expectation of improvements in freight demand for 2017 are coming to fruition,” said Jonathan Starks, FTR’s chief operating officer.

Also driving up the demand for used trucks are contract and spot freight rates. Spot rates are most important to owner-operators, who typically buy used trucks, as contract rates are more for large and mid-size fleets, Clough said.

Spot market load activity in early June is running 50 percent ahead of the same time period last year, Starks said.

Spot rates are up 10 percent on a year-over-year basis, Starks said.

Overall there’s been a fairly stable period for spot rates, Clough said

“Predictability is important. It’s been more comfortable [for used truck buyers] to spend their savings getting another truck,” he said.

Still signs of trouble

Some measures are still showing trouble for used truck values, primarily because of falling auction prices for high-mileage rigs.

The North American market for used trucks fell in May for the third consecutive month, according to Price Digests, a trucking information services company.

Price Digests’ Price Stability Index, a measure of the strength of the resale market in the U.S. and Canada, fell to 96.40 in May from 97.54 in April. A measure of 99 to 100 represents a stable market.

Price Digests, which collects data from used truck dealers and vehicle auctions, said a minimal increase in dealer pricing in May compared with April occurred as used retail truck inventories shrunk. Auction prices were down 1.3 percent as inventories jumped nearly 75 percent.

There were two areas that showed strength.

Pricing for heavy-duty conventional sleeper tractors rose 8.6 percent to an average $43,963 from the same month a year earlier, according to Price Digests. The price of medium-duty crew cabs grew 7.1 percent to $28,334.

But the increases weren’t uniform.

Retail prices for medium-duty conventional day cab chassis plunged 14.3 percent from the same month a year earlier to $17,454.

Overall, the average retail price for a used truck in May was $37,472, a 7.3 percent decline compared with the same period a year earlier. Auction prices fell to $24,131, down 6.8 percent from last year.

“May’s disappointing results increased monthly depreciation averages,” wrote Chris Visser, an analyst for J.D. Power Valuation Service in an online report. “In the first five months of the year, trucks of model year 2011 averaged 3.1 percent depreciation per month, trucks of model year 2012 depreciated 1.1 percent per month, and trucks of model year 2013 essentially lost no value in this period.”

“The medium-duty market was generally healthy, with strength concentrated in the newer, lower mileage end of the spectrum,” analysts wrote in J.D. Power Valuation Services’ Commercial Truck Guidelines.

Used truck inventories

Several issues affect the supply of used trucks for sale.

“New truck buyers will alter their trade cycles that will have an impact from time to time,” Clough said. “Used truck buyers may decide to hold on to trucks a bit longer because of whatever is going on in the economy.”

Improvements in technology, including cell phones and GPS systems, have helped the trucking industry become more efficient as it takes fewer trucks to haul tonnage than in the 2000s, he said.

In recent years, there has been an increasing demand for model year 2007 and earlier used trucks without diesel particulate filters, or DPFs, aimed at reducing harmful emissions diesel trucks produce.

Many used truck buyers are dragging their feet on buying newer technology, Clough said. “A lot of those guys continue to rebuild their trucks.”

Costly repairs for newer trucks equipped with DPFs are one reason demand for older trucks has risen, Clough said.

Owners of newer trucks with advanced technology can end up with a $20,000 repair bill, which doesn’t include engine maintenance, he said.

Another surprise has been the demand and acceptance of automated manual transmissions. Six or seven years ago, used truck buyers would only have looked for trucks with 10-speed or 13-speed manual transmissions.

Now, Clough said he’s seeing an increased demand for used trucks with Volvo’s I-Shift and Freightliner’s Detroit DT12 transmissions.

“This is so good to see for the trucking business because obviously a good automated manual transmission is much easier to break new drivers in on than a manual transmission and it helps with fuel economy,” he said.

Editor’s note: staff writer Clarissa Hawes contributed to this report.

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