Strong Used-Truck Sales Gains Creating Shortage, Dealers Say

This story appears in the Feb. 7 print edition of Transport Topics.

Customers bought used Class 8 trucks at such a fast pace last year that they swept dealer lots nearly clean, triggering shortages expected to last for several years and pushing prices up as much as 30%, according to dealers and analysts.

“Used trucks are definitely the hot market right now, one that’s really rolling,” Kyle Treadway, president of Kenworth Sales Co., told Transport Topics. “New truck sales, while rising, still have a way to go to catch up to the used market.”

Kenworth Sales Co. is based outside Salt Lake City and has 18 locations in the West.

He said that the company has cleared out its backed up inventory that “we carried through the recession.”

“Now, we’re aggressively looking for inventory, and a lot that we buy never hits our lots,” Treadway, also chairman of the American Truck Dealers association, explained. “We find them on the Internet and sell them on the Internet.”

The latest report by ACT Research Co. reflects the situation, said Steve Tam, vice president of ACT’s commercial vehicle sector. ACT surveys dealers that the company estimates account for 10% of the used truck market in the United States.

Truck dealers in ACT’s data base sold 27,353 used Class 8s in 2010, a 29% increase over 2009, the company said Jan. 26. However, sales in December actually fell from the previous year. The survey showed that its dealers sold 2,521 used heavy-duty trucks in December, down from 2,631 in December 2009.

“That percentage increase is pretty good, but the market has been constrained by lack of inventory, especially of low-mileage trucks,” Tam told TT. “I certainly think the lack of inventory may be the main reason why retail sales were down slightly from last December.”

“This supply problem isn’t short term, and it will get worse before it gets better, and I mean for the next few years,” Chris Brady, president of Commercial Motor Vehicle Consulting, Manhasset, N.Y., told TT. “Remember, we’ve had weak truck sales below replacement rates in 2007, ’08 and ’09, as well as last year.”

Brady estimated that sale levels needed to replace trucks taken off U.S. roads would have been 167,800 units in 2007; 170,600 in 2008; 172,900 in 2009; and 175,200 last year.

Actual new Class 8 sales were below those numbers for each year: 150,965 in 2007; 133,473 in 2008; 94,798 in 2009; and 107,152 last year, according to Wardsauto.com.

“This lack of supply might not be a problem to truck manufacturers,” Brady added. “This supply imbalance is increasing the cost of used trucks to such an extent that it may induce some customers to buy new ones, since financing rates are still low.”

ACT’s Tam also said that major fleets — the most common buyers of new trucks — are seeing the value rise for the trucks they use as trade-ins.

“The higher used prices go, the more ‘equity’ new truck buyers have in the equipment they want to trade, so it lowers their outlay for new trucks,” Tam said.

All used truck dealers contacted by TT said they agreed that there was not enough supply.

“Eighteen months ago, all we were doing was looking for buyers and values were down, but the market has turned around 180%,” Tim Ormsby, president of T&R Truck Sales, a used truck wholesaler in Fort Wayne, Ind., told TT. “Now, you can’t find equipment, and when you do, trucks have gotten a lot higher in price, up 30% from last year.”

Ormsby, also a member of the board of the Used Truck Association, added that he didn’t “have inventory right now. Anything I find, I make a few phone calls and it’s sold right away.”

He said that he thinks the flood of buyers came mostly from small and medium fleets, “who held off as long as they can, but they’ve just gotten to the point where they have to replace tractors, but they are still tying to avoid buying the new technology.”

“Absolutely, our sales have grown in 2010,” Bobby Williams, used truck manager at Bruckner Truck Sales, Dallas, told TT. “However, equipment is getting harder and harder to find, and those you do find tend to have a higher mileage than they used to.”

He said that “everyone is networking, visiting forums or going around knocking on doors, to search for product.”

“We’re looking for a product with the lowest possible mileage for our customers, and finding them is really a daily challenge for all of us,” said Boyd, who also is UTA vice president.

Bryan Boyd, owner of Boyd Truck Center Inc., a used truck business in Tulsa, Okla., said that one traditional source of product, new truck dealers, has also disappeared as they try to sell the used products themselves.

“Prices are really crazy right now,” Boyd told TT. “No one knows what the market is.”

He said rumors roll through the industry, such as some major fleets will make large new truck purchases in the second quarter this year.

“Some dealers are afraid that if they pay today’s price, they may be buried in it if the market drops,’ Boyd said.

“It’s a tough deal,” he added. “You try to buy inventory that you’re going to move out very quick. Every dealer that you talk to has his checkbook open to buy inventory, but no one has any.”