Demand for low-mileage used trucks led desperate buyers to pay almost twice as much for used iron at November auctions as a year ago, reversing places with typically higher retail prices.
The phenomenon is being driven by the shortage of new trucks, whose production is hampered by an unrelenting supply chain crisis in which rotating component shortages are worsened by a lack of semiconductors critical to many truck functions.
With few deliveries of new trucks to replace current ones, fleets are holding on to equipment beyond the typical 4-to-5-year trade cycle, making the few trade-ins stunningly expensive.
“Pricing for the newest trucks available jumped notably, with soon-to-be-5-year-old trucks knocking on the door of six figures,” Chris Visser, J.D. Valuation Services commercial vehicles senior analyst, wrote in the latest used truck Guidelines newsletter.
‘Throttle firmly to the floor’
“Incoming December data shows the throttle firmly to the floor,” Visser wrote. A 2018 model truck averaged $99,120 in November, 16.5% more than in October. The average 2017 model jumped a whopping 25.4% month over month to $87,071.
Power’s benchmark group of 4-to-6-year-old trucks brought 13.3% more money in November compared to October, 95.6% more for the first 11 months of the year compared to 2020 and 81.7% ahead of the same period in 2019.
“I’ve been in the transportation industry for over 30 years and have never seen anything that resembles this market,” said Rob Slavin, senior valuation analyst, Ritchie Bros., a global asset management and disposition company that holds truck and equipment auctions throughout the U.S. and Canada.
“I’ve been in the transportation industry for over 30 years and have never seen anything that resembles this market.”
Rob Slavin, senior valuation analyst, Ritchie Bros
Used truck tractors are 55% year over year in the U.S. for the three months ending Nov. 30 with “2- and 3-year-old units transacting at higher prices than what a 2022 model truck would sell for at retail,” Slavin told FreightWaves.
Two recent examples from Ritchie Bros. auctions: a 2021 Peterbilt 389 tri-axle daycab sold for $265,000 in Carlsbad, New Mexico, and a 2020 Peterbilt 389 tri-axle day cab sold for $255,000 in North East, Maryland.
Retailers struggling for trucks
The average sleeper tractor sold at retail in November was six years and two months, had 460,645 miles and brought $89,979. Every model year from 2014 to 2020 saw higher prices in dealerships — from 0.5% for 2020 models to 12.7% for 2016 models, according to JDPS.
Dealers eked out a small month-over-month increase in same-store sales, but volume continues to be supply-constrained. Retail prices have never been higher.
“Dealers would sell more trucks if there were more trucks to sell,” Visser told FreightWaves. “Small fleets should be able to take advantage of high trade-in values and business loans or existing capital to swing the purchase of newer trucks. But overall, there’s just not much iron to sell anyone.”
More new truck production would help.
“Looking at new truck availability, as of mid-December, we might just now be seeing the earliest hints of improved parts and semiconductor availability, but we still have a long way to go before OEMs are able to build enough trucks to meet demand,” Visser said.
“Casual conversations with decision makers and observers across the industry show nearly everyone with a ‘long and strong’ outlook on used truck pricing. It’s certain that new truck availability will be tight well into 2022. It’s also certain that used truck availability will be tight as long as buyers have confidence that freight rates will remain elevated.”
Spot rates offset affordability concerns
The higher prices are not deterring would-be buyers chasing those higher spot rates, Steve Tam, a vice president at ACT Research, told FreightWaves.
“There are funding sources lined up to loan money to buyers, even at the record high prices we are seeing,” he said. “Lenders are definitely asking for larger down payments and higher monthly payments, but with record high freight rates, borrowers can pay more and still make better money.”
So even as a shortage of drivers impacts certain trucking segments, the rise in drivers quitting for-hire firms to strike out on their own is growing.
“With no data, I would have to say that the overwhelming majority of used truck sales this year have been to owner-operators and small fleets, many of whom are new entrants seduced by the profit motive,” Tam said.
Leasing is a good option for those who cannot qualify for newer iron, according to Visser.
“For outright purchases, I’m honestly not sure how a driver with anything other than very good credit and substantial liquidity can afford a late-model truck,” he said. “Pricing may plateau in the next few months, but we don’t see a major market shift happening in the first quarter.”
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