And now, used trucks rule

With the manufacturing of trucks equipped with pre-October engines now over, the industry is turning its attention from the pre-buy of trucks to the uncertain demand for new-technology power units. Although a new truck with older technology is no longer an option – at least not in a few weeks – buying used remains an alternative.

A high demand for good used trucks should come as no surprise. Indeed, concerns with exhaust gas recirculation (EGR) technology and an inevitable rebalancing of supply and demand have led to a significant firming of used truck values during the year and a developing shortage of trucks deemed to be most desirable.

Higher values
Terry Williams, editor of the Truck Blue Book, saw used truck prices rising beginning in February, especially for late-model, low-mileage on-highway tractors. On average, such trucks with owner-operator specs are up about $20,000, while fleet-spec’ed equipment is up about $15,000, Williams says. Day cabs are up about $8,000 to $10,000. Used vocational trucks, however, have declined in value due to state budget shortfalls, declines in commercial building and a lack of public works projects, Williams says.

Williams has seen huge differences in pricing from dealer to dealer. In surveying pricing on a particular 2000 model tractor, he found prices ranging from $39,800 to $60,900 for the exact same specs. And sales volume has been jumpy as well. “For three weeks many dealers will be as busy as they have ever been – in fact some noted they had the best month ever. Then it would be dead for three weeks.”

Like Williams, major used truck remarketers have seen sharp demand for low-mileage, late-model highway tractors.

“Pricing has firmed throughout all used truck market segments throughout 2002,” although some have firmed more than others, says Bill Gordon, president of the Freightliner LLC business unit that operates the SelecTrucks used truck network. “Day cabs remain very strong, and low-mile, late-model have strengthened significantly.” Gordon says that the recovery in prices for higher-mile fleet trucks has been less pronounced.

Mileage is king
Kansas City, Mo.-based Arrow Truck Sales saw pricing firm up from early this year through mid-summer, says Jim Stevenson, vice president of asset management. “Since late summer, we have seen a stabilization in pricing,” he says. “But there’s still a premium on a low-mile, properly spec’ed truck.”

Actually, specs aren’t nearly as important these days as mileage. “It’s miles, its miles, its miles,” Stevenson says. Low mileage is clearly the No. 1 priority. Although that’s always a concern, mileage is of particular interest now because some truck owners that have traditionally bought new are beginning to dabble in the used truck market. Those customers are especially interested in low mileage. And inventory of those trucks is drying up.

The growing shortage isn’t just a demand issue, either. The supply is dwindling. “Everyone’s frustrated because there are just not that many trucks available,” says Eddie Walker, owner of Best Used Trucks in Fort Worth, Texas, and president of the Used Truck Association. “In the future, there may only be high-mileage trucks.” Walker points to greater utilization of equipment and, especially, the popularity of team driving among carriers. “It’s not uncommon to find 2000 or 2001 model trucks with 500,000 to 600,000 miles or more on them in today’s market.” Carriers are putting as many miles on trucks in two years as they used to put on them in four, Walker says.

Bigger buyers
Used truck remarketers have traditionally depended on the owner-operator market for the bulk of sales, but the customer base is starting to balance out a bit. Freightliner SelecTrucks locations have seen the ratio of fleets to owner-operators increase, Gordon says. The company, which already has some initiatives aimed at first-time truck buyers, is exploring some leasing programs and other incentives to further encourage fleet buying.

“We have seen a growth period selling smaller fleets and people buying multiple trucks over the past two quarters,” says Arrow Truck Sales’ Stevenson. “We’re probably at about 50/50 now; before we were definitely heavier on the owner-operator side.” Arrow is pleased with that trend, Stevenson says. Fleets generally prefer trucks in a multiple buy to be the same model and specs. That gives large used truck networks like Arrow an advantage over the independents in going after fleet business, Stevenson says.

Creative solutions
Faced with an ample supply of used trucks in the past couple of years, remarketers have formulated some creative strategies to find new markets.

Freightliner LLC in March announced availability of a factory-reconfigured Century Class day cab created from a used Century Class sleeper cab. The conversion takes place at Freightliner’s used truck reconfiguration and refurbishing factory in Tooele, Utah. Gordon says the project has been successful and that the company is considering another shift at Tooele and even launching a second reconfiguration operation in the United States.

“Reconfigured day cabs are hitting a market segment that had not been addressed before,” Gordon says. Because there aren’t many used day cabs in the market, a reconfigured day cab offers an attractive alternative, in terms of price, to new day cabs.

Last year, Arrow Truck Sales announced arrangements with US Truck Body and Heil to fit used trucks with new moving van bodies and dump bodies, respectively.

Both initiatives have been very successful, Stevenson says. “We have definitely grown our business with Heil.” The arrangement with US Truck Body hasn’t seen the same growth, but that’s primarily due to a softness in the overall moving and storage industry. Relatively speaking, that effort has gone well, Stevenson says.

The push to sell new
Truck and engine manufacturers, of course, are eager to pull in sales and are cooking up perks and incentives to discourage a wholesale rush to buy used instead of new. Cummins, for example, has offered its Cummins Uptime Guarantee, promising to get operators back on the road within 24 hours if an EGR-equipped engine breaks down. (See Dispatch, October 2002.)

One of the more aggressive truck makers to date is Peterbilt, which has offered such benefits as extended warranties and discounts on lighter-weight components to comfort truck buyers. The company also recently issued a statement encouraging truck buyers to consider all factors before deciding to extend trade cycles or buy pre-owned trucks.

Dan Sobic, Peterbilt’s assistant general manager, argued that buyers may have already missed their opportunity to get an attractive deal on a used truck because “it’s a seller’s market.” In addition, truck buyers should consider the 2002 emissions issue in relation to the more challenging 2007 mandate, Sobic said. A truck bought today likely will have a strong resale value in four years as fleets will want to avoid 2007 trucks, he argued. In addition, skillful spec’ing can offset concerns with the new engines, Sobic said. Peterbilt pointed to other usual benefits of buying new, such as lower maintenance costs, greater uptime and driver recruitment and retention.

Despite the pleas from truck makers, however, used truck remarketers expect demand to be strong for months to come.

The road ahead
In the near term, the bargains are starting to disappear as inentory drops. The SelecTrucks network, for example, has seen an inventory decline of about 20 percent in the past three or four months.

Williams points to a couple of reasons factors for a shrinking used truck inventory. First, of course, demand in 2002 due to a desire to avoid the new engines and other factors has drawn down inventory. Second, there was not a flood of off-lease vehicles into the marketplace this year, so supply stayed fairly stable, Williams says.

Although the engine change-out clearly played a role, demand was due to rise anyway, says Freightliner SelecTrucks’ Gordon. “We believe this is just the start of a cyclical demand in used trucks.” Used trucks were flooding the market, so pricing reached a floor that created demand, he says.

The trucking industry can expect more trucks when those sold in 1999 and 2000 hit trade cycles, but don’t expect the same kind of spike in supply that the industry saw last year.

While some carriers may continue the same short, three-year trading cycle we saw in the 1990s, many others are stretching cycles to as long as 48 months. The greater diversity of business models should smooth out supply somewhat. Still, there’s no question that the number of trucks sold in 1999 and early 2000 will mean a healthy supply of used trucks for the next couple of years.

After that, expect a shortage unless demand for new trucks in the coming months is higher than expected. “If you look at the used truck business, it starts with the new truck sale,” Stevenson says. “When you look down the road there will be a shortage of used trucks.”

Sean Kelley contributed to this report