Used Truck Sales Rise as Dealers Buy Aggressively

This story appears in the Oct. 11 print edition of Transport Topics.

Used-truck dealers, facing a dearth of late-model, low-mileage vehicles after large fleets drained the market earlier this year, shopped aggressively in August, pushing sales up 55% from year-ago levels, according to industry sources.

The “majority of the increased volume came in the auction and wholesale channels,” said Steve Tam, an analyst with ACT Research Co., Columbus, Ind. “This observation supports comments coming out of the industry that dealers are in the market for trucks, trying to shore up their inventories as supplies of used trucks dwindle.”

As a result of this shrinking supply, the average price paid by retail buyers for a used truck rose to about $40,000, ACT Research said. It was the first time since February 2009 that the average used-truck price broke the $40,000 mark.

ACT Research estimated that about 10% of all used Class 8 truck transactions in the United States are included in its database. Participating dealers reported 2,365 used truck sales for August, compared with 1,530 in August 2009.

One dealer reached by Transport Topics said that the August drive by dealers to restock used-truck inventories was a response to a drawdown precipitated by economically cautious truck buyers, who earlier this year opted to invest in used equipment rather than new vehicles.

“You started having quite a few fleets, who typically buy new, buying used trucks earlier in this year, and that drove up a lot of the demand,” said Steve Clough, president and chief executive officer of Arrow Truck Sales, Kansas City, Mo. These were larger fleets that “may have been buying 400 to 500 used trucks over a period of months,” Clough said.

That is a typical equipment procurement strategy in the early stages of an economic recovery, Clough said. However, more of it than usual has gone on in 2010.

The retail buying spree by fleets already is hitting a wall, Clough said. The late-model, low-mileage used trucks that fleets want are less likely to be available in the bulk quantity that fleets desire.

“If a fleet wants a large group of used trucks right now,” he said, “it’s going to be a lot tougher for them to find it, compared with March of this year.”

These market conditions soon will drive fleet buyers back to the new truck market, Clough said.

Arrow, which is owned by Volvo AB, is one of the largest used-truck dealerships in the country.

The used-truck supply crunch, and the accompanying spike in prices, has been in the cards for years, dealers told Transport Topics. The 2006 pre-buy of new trucks, when fleets rushed to add trucks before diesel particulate filters became mandatory, was part of the reason.

After the pre-buy, buyers scaled back orders and truck build rates fell off a cliff. Manufacturers cranked out 284,008 Class 8 trucks in 2006 to feed fleets’ appetites for pre-2007 trucks. In 2007, that build rate dropped by almost half, to 150,965 trucks.

In 2008 and 2009, build rates declined further as the recession made trucking companies cautious about laying down the capital required to refresh their fleets. Presently, experts peg the average age of the U.S. truck fleet at about seven years.

The result of this confluence of factors is a smaller supply of higher-mileage used trucks that command higher prices than either buyers or sellers are accustomed to paying, used truck dealers said.

“What we’ve seen, especially in the last 90 days, is a huge price increase,” said Jonathan Tepper, president of used truck dealer Ameritruck, Charlotte, N.C. “In the last six months, that’s probably a $4,000 to $5,000 increase on a 600,000-mile piece,” he told Transport Topics.

Eddie Walker, who owns Best Used Trucks in Fort Worth, Texas, described similar price increases in the same time frame.

Six months ago, Walker’s dealership was buying 2004 model-year trucks “for $10,000 to $12,000 and ’05s for $14,000 to $16,000,” he said. “After we got those sold, the next group came out, and they were selling ’05s and ’06s. The ’05s just last week went in the high teens and low, low $20,000” range, Walker told TT Oct. 5.

Moreover, when the next batch of used trucks enters resale supply chains, “we’ll be faced with selling higher-mileage equipment,” said Tepper at Ameritruck. “We’ve had the luxury over the last several years of having a lot of low-mileage equipment because of tough times and a lot of repossessions.”

Earlier this year, Tepper said, one of his fleet customers advised him that he would be trading in a more thoroughly-used group of trucks than usual — 600,000 to 700,000 miles, compared with the usual range of 300,000 to 400,000.

“It’s going to force all of us to become much more proficient in being able to sell trucks with higher mileage,” Tepper said.