The used big rig market is sluggish and is likely to get worse.
A combination of factors has contributed to anemic pricing, including a flood of trucks hitting the market from the 2012 to 2015 model years, more efficient new big rigs packed with technology advances and a steady stream of older truckers leaving the business and liquidating their equipment.
Analysts Jerry Revich of Goldman Sachs and Steve Tam, vice president of ACT Research, have dissected the market for used trucks in the heaviest Class 8 weight segment and this is what they have found.
The resale price of used commercial trucks averaged $41,000, up 3.3 percent from $39,700 in March of 2017, Tam said. However, the price is down 1. 9 percent from February, Tam said.
Used truck prices will continue to remain strong for most of the year but may dip late in the year and into 2019, Tam said.
“We will see price appreciation for a good part of the year, but because of the strength of the new truck market, we expect an increase in inventory flowing into the used truck market,” which will push prices down later this year and next year, he said.
Inventories have ballooned. There were about 70,000 used semi tractors on the market in February.
“To put it into perspective, we really want to see something closer to 50,000 used trucks,” Tam said. “Most of the excess is related to the late model, low model sleeper market.”
All this is happening at a time when buyers are flocking to new trucks. Orders for trucks in the heaviest Class 8 weight segment reached 133,900 for the quarter, a 98.4 percent gain compared with the same period a year ago, according to industry research firm FTR Transportation Intelligence.
The divergence between the new and used truck markets is caused by multiple factors, Revich said.
At the top is new technology and fuel efficiency.
The fuel efficiency of newer trucks makes them economically attractive considering that fuel is the second highest cost after labor of a motor carrier’s expenses.
Technology also has made new trucks more reliable.
“Newer trucks have less downtime and often are better quality than some of the 2012-2014 vintages,” Revich wrote in a recent report for trucking industry investors. “This drives profitability for truckers so they are more willing to order new trucks.”
Used truck prices are expected to weaken as a glut of semi tractors from the high orders of the 2012-2015 time period starts to hit the market. Trucks are typically operated for six years before being sold or traded in for the first time, Revich said.
“At some point this year, we are going to be sending more trucks into the used truck inventory than we’re selling out of used inventory,” Tam said.
Eventually that will flip the market and cut into new truck orders.
Although fleet operators like new technology and new trucks, there’s a point where the gap between new and used vehicle prices grows so large that they will eventually turn to used trucks, sparking a rebound in the market, Revich said.