New Wave of Used Heavy-Duty Trucks Expected, But Trade-ins Likely to Come With More Miles

This story appears in the April 18 print edition of Transport Topics.

The U.S. used Class 8 market, beset by a widespread scarcity of low-mileage vehicles and spiraling prices, is expected to receive a huge infusion of fresh supply, according to industry executives and analysts.

The “new” used trucks, however, will be coming to the market several years older and carrying up to 200,000 more miles than usual.

That’s because, while new-truck orders are surging, those trucks will be used to replace vehicles that were kept longer than usual by fleets trying to save money during the recession.

“Truck manufacturers are increasing their build rate so that we expect to see these new Class 8 sales being made soon, but I expect that the short supply of low-mileage trucks, of 200,000 to 300,000 miles, will continue,” Steve Clough, president of Arrow Truck Sales Inc., Kansas City, Mo., told Transport Topics.

“Highway fleets prefer 3- to 4-year-old used trucks, but remember, not that many new Class 8s were sold three or four years ago,” he added. “Fleets have been holding onto their trucks longer than usual, so that I don’t expect that we’ll see the historical ratio of used low-mileage trucks to higher mileage ones this year.”

Clough also said that he still expected a “brisk market” for used vehicles with 400,000 to 500,000 miles on them this year.

Swedish-based global truck manufacturer Volvo AB is the parent company of Arrow Truck Sales.

“Because of the recession [a few years ago], many small, independent used-truck dealers were left with 80 to 100 Class 8s on their lots, with no customers — which hurt them financially in a great way,” said Rick Clark, president of the Used Truck Association. “Now, their lots are empty. . . . I have a dealer friend who told me that he bought 68 used Class 8s and sold every one before they reached his lot.”

The real surge in used-truck sales, however, isn’t expected to begin until later this year, said Marty Crawford, regional sales manager of North American Trucks, Fort Worth, Texas. NAT also is a division of Volvo AB.

“I think we will see an increase in used trucks becoming available in the summer, primarily fleet-type trucks,” Crawford told TT.

He said that the recession has forced a change in some fleets’ buying habits that could endure long after the recovery grows robust — the change being fleets buying used trucks instead of new ones, as they have in the past.

“We have a lot of fleets that are buying now, buying in batches of 20 to 500 used trucks, and these are fleets that in the past would have bought only new trucks,” Crawford said. “They may be buying some new trucks as well, but they’re mixing them with used as a way to expand the size of their fleets.”

He said that such customers preferred to buy 3-year-old trucks with about 300,000 miles on them, “but this summer, they’ll be finding that 4- and 5-year-old trucks are more common . . . and I suspect they’ll have 500,000-plus miles on them.”

Crawford didn’t think that would deter this new class of used Class 8 buyers: “We see that trend continuing through the summer and absorbing the influx of trucks coming into the market.”

That influx is expected when orders for new trucks are filled and the purchasers of those vehicles trade in their older models.

While North American Class 8 truck orders were as low as around 6,000 in January 2010, they soared to more than 25,000 each in November and December, moved up to 27,300 in January, and slipped slightly to 24,000 in February (3-28, p. 1).

New truck sales, or actual deliveries of vehicles to fleets and dealers, have not kept up with orders. The number of used trucks sold in the United States in January was 9,236 and 9,712 in February, WardsAuto.com reported. Those sales are expected to increase in the second half of 2011.

“I think that we’ll see a pickup in pace of deliveries in the beginning of summer out of those very high orders that were put in over the winter,” Kyle Treadway, president of Kenworth Sales Co., West Valley City, Utah, told TT. He also is chairman of American Truck Dealers association.

Kenworth Sales sells both new Class 8 Kenworth trucks and used heavy-duty vehicles of all models out of 10 locations in western and mountain states.

And despite the age and wear on the next generation of used trucks for sale, some officials expect that prices will not be affected.

Tom Pfeiler, district used-truck manager of Daimler Trucks Remarketing, a division of Daimler Trucks North America, Peosta, Iowa, said he didn’t expect used-truck prices to fall once the summer surge occurs.

“In this recession, many fleets drove their trucks a lot longer than usual, and we have to adjust to that fact,” he said. “I’m not sure the higher mileage will make much difference in prices. You just have to go back to supply and demand. The whole idea of a used truck with low mileage may be gone.”

Not everyone, however, believes the predicted surge in new-truck sales will translate into a correlating increase in the sales of used trucks.

Kenny Vieth, senior analyst at commercial vehicle firm ACT Research Co., Columbus, Ind., expressed doubts.

“On the one hand, we will have a growing supply of used trucks with growing sales. But are those trucks what the typical used-truck buyer wants to buy? There won’t be a lot of late models coming in, and those that do will command premium prices for the next few years,” Vieth said.

Vieth said that he could foresee many of the used trucks coming onto the market with 600,000 to 700,000 miles, nearly double the norm.

Frank Ellett, principal of Virginia Truck Center, Roanoke, Va., said there may be yet another reason why a surge in new Class 8 deliveries will not ease the crunch for used vehicles.

“I think we’re experiencing fewer trade-ins,” said Ellett, whose business has six locations offering Freightliner and Western Star trucks, both part

of Daimler Trucks North America, and Mack trucks, one of two North American subsidiaries of Volvo AB.

“More fleets are selling the trucks themselves because they’re good business people and [they] recognize the higher prices today, or they’re building the size of their fleets,” Ellett said.

“The price of used Class 8s has not declined as age and mileage has gone up, because of the scarcity,” he added.

Kenworth Sales’ Treadway agreed: “Our new truck orders are not accompanied by the amount of trade-ins we usually see. Somehow, the customers have sold the used equipment themselves, or the truck doesn’t have any life in it.”

Jack McDevitt Jr., owner of McDevitt Truck Sales, Manchester, N.H., also saw little relief coming to the used-truck side of the market.

“The used heavy-duty market is red-hot right now,” McDevitt told TT. “We’re not changing our practices to deal with it as we’ve always accepted trade-ins of all brands and try to sell them ourselves, because it’s been a major profit center.”

McDevitt Truck has three branches and is a dealer for new Mack, Volvo, Peterbilt and Western Star trucks. Peterbilt, as is Kenworth, is a subsidiary of Paccar Inc. Western Star is mainly a vocational brand of DTNA.

“We don’t see the delivery of any big numbers of new tractors having much of an impact on us here,” McDevitt said.

He said that fleets are still turning most of their rotated trucks over to his locations when they get new trucks delivered.

“Yes, they’re offering their old trucks to us, but they know they’re worth more, and we are stepping up and paying a larger amount,” McDevitt said. “We’re having a very difficult time buying [used trucks] on the open market.”

Jim Hartman, principal for Truck Enterprises, Harrisonburg, Va., said he, too, doesn’t see a surge for the used market. Truck Enterprises, with three locations, is a dealer for Volvo Trucks North America, another Volvo AB company, and Kenworth trucks.

“We have been aggressively buying Class 8 used trucks for several years,” Hartman told TT. “We have a good market for those trucks, though in the present situation, the value has increased dramatically.”

He said that his business is now buying trucks that have 500,000 miles on them, “while last year, we were getting them with 300,000 to 400,000 miles.”

Hartman said that he does not expect a surge in used vehicles, at least in the short term.

“Many of our customers have changed their trade cycles and are running their units much larger,” he said. “Some customers have found that they can get much higher mileage out of their trucks and still run their businesses. Whether it reverts to past cycles as they get more confident, we don’t know.”

The used trucks expected to be available later this year are also instigating a change in warranty policies.

Clark, who also is vice president of sales at National Truck Protection, Cranford, N.J., told TT that NTP, which writes warranties for used trucks, has had to change its guidelines to reflect the new reality.

“Owner-operators used to come to us for a warranty on the powertrain of trucks they just bought that had 500,000 miles on them,” Clark said. “Now, they are starting at 600,000 miles.”