It's A Buyers' Market As Used Truck Glut Stalls New Orders

Prices for heavy-duty used trucks are running at three-year lows, stalling new truck orders until owners can get more money for their trade-ins.

And the glut of used trucks on the market isn't helping.

"Dealers are reporting used truck sales are lagging, inventory is building, prices are falling and the used truck market remains a buyer's market," said Steve Tam, vice president at ACT Research. 

ACT reported used Class 8 same dealer sales volumes in November fell 35% compared with October. They are off 9% year over year and 16% year to date compared with the first 11 months of 2018.

The average miles on a Class 8 truck were up 1% year to date, while the age was up 5% and prices were flat, ACT reported.

Class 8 truck orders (blue) overlaid on 3-, 4-, and 5-year-old used truck prices. (FreightWaves/SONAR)

Used Sleepers

"With a lot of trades hitting the market, used truck prices are declining. And in cases where the market value of the used truck drops below the book value, those potential customers may defer their decision to purchase until conditions improve," Navistar International Corp. CEO Troy Clarke told analysts on a Nov. 17 earnings call.

The average sleeper tractor sold at retail for $45,762 in November. It was 76 months old and had 485,541 miles, according to J.D. Power Valuation Services. In November 2018, the average sleeper was seven months older, had 4.6% more miles and sold for 20.6% less money.

It will take a quarter or two for the industry to work through a glut of 5-year-old Class 8 sleepers, Clarke said.

Holding Off

Rental and leasing companies, which make up a significant portion of Navistar's truck business, are reallocating rental units to support leasing customers and extending lease contracts until used truck prices stabilize, Navistar Chief Financial Officer Walter Borst said on the earnings call. 

That also contributes to delayed new truck orders. 

"Every time that happens, that's one less (new) unit we see in our pipeline," Navistar Chief Operating Officer Persio Lisboa said on the call.

Truck makers are reducing production and laying off employees to adjust. Navistar is furloughing more than 10% of its workforce; the biggest cuts are production workers in Ohio and Mexico. Volvo Trucks North America plans 700 layoffs in Virginia in January; Daimler Trucks North America cut 900 jobs in October at two plants in North Carolina and 250 jobs in Mexico.

Navistar plans to use overtime to build additional trucks if orders pick up in the second quarter of 2020 as anticipated.

Purchasing managers are eager for 2021 models, which offer up to 8.5% better fuel efficiency because of tougher greenhouse gas emission regulations passed into law in 2016, Borst said. But they are in no rush to have the orders produced. 

"We believe customers are taking a wait-and-see approach for their new truck needs," he said.

Depressed Prices

In the first 11 months of 2019, J.D. Power's benchmark group of 4- to 6-year-old trucks brought 12.3% less money than in the same period of 2018. Narrowed to a comparison between October-November 2019 and October-November 2018, the variance increases to 30.3%.

Class 8 truck orders in 2019 compared with the prices for 3-, 4- and 5-year-old used trucks. (FreightWaves/SONAR)

Over the last 12 months, day cab used inventory going through auction rose from 3,000 to 7,000 units, Lisboa said. The number of sleeper cabs rose from 6,000 to 10,000 units. Prices dropped an average of $1,200, he said.

"Pricing is now roughly on par with the last market bottom in 2016," said Chris Visser, J.D. Power senior analyst and product manager.

Buyers Market

The present situation is good for used truck buyers.

"Customers are finding bargains available for all makes and models of used trucks, and there are some fantastic buys," Tam said.

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