'This is a bad year' for used trucks

This week's 10-44 is brought to you by Chevron Delo 600 ADF ultra low ash diesel engine oil. It's time to kick some ash.

(00:09):

A soft freight environment has been a boon for buyers of used trucks and several more months of discounts probably lie ahead. You're watching CCJ's 10-44, a weekly webisode that brings you the latest trucking industry news and updates from the editors of CCJ Don't forget to subscribe and hit the bell for notifications so you'll never miss an installment of 10-44.

Jason Cannon (00:30):

Hey everybody, welcome back. I'm Jason Cannon, and my co-host on the other side is Matt Cole. A white-hot spot market and hopefully a once-in-a-lifetime supply chain snarl sent used truck prices soaring in 2021 to 2022. But new truck builds have normalized, the spot markets dropped, and load volume ain't what it used to be. So all that capacity that was created almost three years ago is now working its way into the used truck market and that ain't what it used to be either.

Matt Cole (00:57):

Buyers of equipment are facing inflation-suppressed freight rates and tighter credit, while sellers are facing a lot of competition as more and more assets filter into the market.

Jason Cannon (01:06):

Joining the 10-44 this week is JD Power's Director of Specialty Vehicles, Chris Visser. Now, a lot of people they like to quantify economic scenarios as either good or bad and Chris is going to button it up really neatly for us.

Chris Visser (01:19):

This is a bad year. The spot market rates are back towards around 2019 kind of weak levels. Contract rates surprisingly strong and that's one thing that's propped up values to some extent, that that's one reason why we've certainly seen steep depreciation, but it could have been even worse. And the fact that contract rates are still historically high is encouraging.

(01:47):

But the fact that we have, let's call it 200,000 additional trucks that are for the most part no longer needed, that's going to be a weak year. There are just simply too many trucks chasing a smaller amount of freight. And of course there are too many trucks because everybody got into the game in 2020 through 2021 to chase the spot market rates. And once those dropped back towards normal and actually surpassed what they were in 2019, those trucks were no longer making the money that they were and people who were in the market just to chase that freight either went back to working for a fleet or exited the industry altogether.

(02:34):

So the net result is increased number of trades hitting the market, increased idle capacity of trucks, and that's reflected in the selling prices.

Matt Cole (02:44):

For A long period of time in the pandemic used trucks were appreciating in value, but Chris says that's no longer the case with depreciation levels now close to three times what would be a historical average.

Chris Visser (02:55):

Basically since at least the second quarter of last year, we've seen heavy depreciation for sleeper tractors. Right now we're averaging about 6% depreciation per month at auction, and about four to 5% at retail, and that's through May, which is the last data that I've seen so far. I haven't seen a let up in depreciation yet. It kind of plateaued a little bit fourth quarter of last year, but then ramped right back up again as soon as the auction market opened back up early this year.

(03:31):

We are right now roughly at parity with the last strong market, which was 2018 if you don't adjust for inflation... I'm sorry, if you do adjust for inflation. If you don't adjust for inflation and just use nominal numbers, we're still 15 or so percent ahead of 2018 pricing. I think it's wise to probably consider inflation when you're doing historical comparisons at this point, but the fact that the nominal number of dollar value is still above where we were in 2018 leaves me to believe that we still have a way to go.

(04:07):

When the inflation adjusted comparison gets back towards kind of the depth of the 2019 market, which was the last weak market we've had, then I'll start to think about whether we should probably start looking for some stabilization in pricing. And at 6% depreciation per month, if that remains linear going forward, it should just be a few more months before we get down to 2019 pricing levels. And at that point, it's possible we could go below there because this peak was so severe that the trough might actually overcorrect a bit. But I have to think by the end of the summer we're probably going to start to see some stabilization in pricing.

Jason Cannon (04:51):

Now it's not all bad news for sellers of used equipment. Chris says a very specific segment of heavy truck is actually doing fairly well. Maybe not well, just not quite as bad, and he tells us what that is after a word from 10-44 sponsor Chevron lubricants.

Speaker 1 (05:08):

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(05:33):

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(05:52):

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Chris Visser (06:15):

Day cabs have held the value much better than sleeper tractors. And in fact, if you look at the same late model trucks spec-for- spec other than sleeper mileage for mileage also day cabs are running pretty close to sleeper tractors as you get into the relatively newer age range, four years old or so, which is unusual. Usually sleepers hold their value back to about five, six years of age, but that's compressing quite a bit compared to day cabs. It's just a lot more rational supply and demand situation.

(06:47):

We're kind of getting back to normal as far as supply of new trucks goes, but up until the end of last year, there were still constraints, and manufacturers were concentrating on producing as many sleepers as they could because that's where the demand was at the expense of producing day cabs. So those are still in short supply. On the used market there, there's still a demand for those because there there's just so many, just a fraction of them compared to sleepers on the market. And they just weren't impacted by that steep decline in demand for freight that the sleeper market was chasing.

(07:21):

So it's not so much that they've increased in value and then are increasing in value, it's that the market for day cabs was a lot less worse than the market for sleeper tractors.

Matt Cole (07:33):

When freight was hot, even with used trucks commanding six figures for the first time ever, fleets were so desperate for assets that brand and spec were far less important than just having a truck. That started to return to a more normal pattern with historical preferences beginning to reemerge.

Chris Visser (07:49):

What's bringing the most money now is back to the traditional specs that usually bring money. 13 liter engines are... Well, I'll put it this way, proprietary 13 liter engines are definitely not bringing money that either the Cummins or proprietary 15 liter engines are bringing. And that holds true for day cabs and of course, sleepers. The exception there is Mack and Volvo who's proprietary 13 liters are pretty much on par with the Cummins spec for spec. And Freightliners 15 liter and Cummins are pretty much equal spec-for-spec. You can't really get a Cummins in most of these trucks anymore, sleeper trucks anyway, if anybody's been following the market. The differences that you're used to between brands is back in place currently.

Jason Cannon (08:41):

So the last six month's been bad, but what about the next six months and beyond?

Chris Visser (08:45):

It's okay to simplify it by just saying that there are too many trucks out there that need to cycle through the market and kind of burn off, so to speak. And once that happens, then we'll be back to a somewhat normal trade cycle. We compressed the last trade cycle due to Covid, so we pulled ahead a lot of purchasing. So any cyclical behavior that would've happened was exacerbated and that's why the peak and trough is so severe.

(09:17):

But by the end of the year, assuming that all else stays equal, which is a big assumption these days, but just strictly based on what the freight market looks like it will probably do, and what supply of incoming trades looks like it will probably do, the market should start looking a little more normal towards the end of this year.

(09:40):

Trucks that were purchased at the really early stages of the boom are starting to hit the market now, so they're getting to be three years old almost, those trucks. Model year 2021 trucks that are coming in, seeing a higher volume of those. There are going to be higher build rate years. I think it was '21 that was the highest build rate year in quite some time. So of course that's going to be a factor three to five years from now, or three to five years from 2020, which we're just getting into now.

(10:13):

The incoming supply overall, just based on new truck build rate is pretty similar this year than it was last year. That just means that there are roughly an equal amount of three- to five-year-old trucks in existence right now than there were last year. But of course we don't need all those trucks like we did a year ago, or a year plus ago. So that's one factor going forward. So really next year, 2024, should be the one year of the market that is kind of post-Covid ridiculousness and pre-2027 pre-buy ridiculousness. So we might have one year of kind of natural market behavior before we move to the next artificial external situation.

Speaker 1 (11:07):

That's it for this week's 10-44. You can read more on ccjdigital.com. While you're there, sign up for our newsletter and stay up to date on the latest in trucking industry news and trends. If you have any questions or feedback, please let us know in the comments below. Don't forget to subscribe and hit the bell for notifications so you can catch us again next week.