Break-even values dictate used truck trade-ins

Row of used trucks

Final numbers for Class 8 used truck sales in April dipped further even as prices continued to fall amid swelling inventories.

With practically no new trucks ordered or sold during the month, already slow-selling used equipment felt the brunt of the COVID-19 pandemic.

ACT Research said same-dealer sales fell 15% from March and 7% from April a year ago. Used trucks were older, sold for less and had fewer miles on the odometer than in March.  

“Most dealers are reporting used truck sales have slowed and inventory levels are building, particularly for late-model aerodynamic sleepers,” said Steve Tam, ACT Research vice president.

While some activity is resuming for used vocational equipment, such as trash or dump trucks, the condition and the asking price must be “on the money,” Tam said. 

Wanted: maximum trade value

Getting maximum trade value in a down market is key for owners of younger over-the-road tractors, said Brian Cota, vice president of sales at Freightliner, the lead brand of Daimler Trucks North America.

“If you have a fleet that has a 4-year-old truck and they owe $50,000-plus on it, they’re going to be unwilling to get rid of it unless you can get close to their payoff value,” Cota said. “From a pricing perspective, that lever’s going to be pulled more on who can come up with the best trade value to come close to breaking even.”

The practical shutdown of new truck production in April and May “has been a little bit of a blessing [for] the used truck market,” Cota said.

“We haven’t built any trucks the past two months, and therefore some carriers are holding onto some trucks that they intended to trade in April and May,” he said.

Deliveries of new trucks delayed until later this year may create a better pricing environment depending on how large fleets weather the downturn. Those that grow their business by picking up new routes from companies that don’t survive might buy more equipment to cover them. 

Chewing up inventory

Used truck prices could rise later this year and into 2021 because the lack of trade-ins will shrink inventories, said William “Rusty” Rush, CEO of Rush Enterprises, the largest network of new and used truck dealerships in the nation.

“You’re chewing up what you’ve got,” he said.

Depreciation is normalizing for 3- to 5-year-old used trucks in part because of dramatic declines in the past year, Rush said. A recovery in the spot freight market could begin to reverse that.

Older models without automated manual transmissions (AMTs) and collision mitigation safety systems sell strictly on price. Valuations have fallen 50% year over year, according to Kenny Vieth, ACT president and senior analyst.

“I’m not going back seven years because they should be at the back of the lot anyway,” Rush said. “You need to get rid of them [quickly].”

Historical patterns lead Vieth to predict the used truck market should improve in the second half of 2021.

“We would think that that late-model used truck valuation should really rip,” he said.