A new study by global consulting firm Frost & Sullivan of the North American Class 8 market projects that a strong equipment replacement cycle should begin between 2014 and 2015, creating an oversupply of used Class 8 equipment that should drive valuations marginally lower over the next several years.
“Our research suggests the equipment replacement cycle peaks every fourth or fifth year, thus suggesting that 2014-2015 will be the next cycle peak ahead of a broader economic upturn in 2016,” Sandeep Kar, global director of commercial vehicle research for Frost & Sullivan, explained to Fleet Owner.
That upturn will also drive an increase in sales of both new and used Class 8 vehicles across North America as well, Kar noted, with sales rising from roughly 241,000 and 195,500 units in 2012, respectively, to some 327,000 and 237,000 units, respectively, by 2019 – translating into a compound annual growth rate (CAGR) for new trucks of 4.5% over the next 7 years, with used trucks experiencing a 2.8% CAGR over the same time period.
Wallace Lau, a trucking Industry analyst with the firm’s global commercial vehicle research practice, noted that even though used truck valuations are poised to decline slightly over the next few years, OEMs are expected to put more focus – and resources – into the used market going forward.
“OEMs are getting far more involved in the used truck space as such vehicles provide a more valuable revenue stream,” he explained.
For example, if used truck values increase, then OEMs pay less of a discount on their new truck models at trade in, Lau said. And if values go down, that provides an incentive for fleets to keep their trucks longer – thus increasing the needs for parts and maintenance services.
He noted that this increased OEM focus on the used truck space is one reason why the recent slippage in dealership domination of the used truck channel – down to some 70% of the market – is expected to reverse course and increase to 73% to 78% by 2018. The study also finds a rising market share, albeit moderately high, for Internet-based used truck sales transactions which accounted for 5% of total sales in 2012.
Frost & Sullivan’s research also discerned some interesting trends concerning Class 8 used truck valuations,
For starters, Lau said used truck values are highly dependent on several key factors, with model year and type, total mileage, engine displacement, and transmission type the major ones.
As a result, a four-year old North American Class 8 used long-haul tractor currently averages $47,475, which drops slightly to $46,200 for a regional-haul unit, then bounces up to $91,190 for a vocational model.
“However, pricing really also depends greatly on region and its market dynamics,” Lau indicated. “For example, used long-haul tractor models are lowest in cost in Canada and the U.S. Northwest as the harsh cold weather erodes their longevity. However, the highest valuations are found in the California and U.S. Rocky Mountain region as trucks in that area typically feature the most desired specifications.”
Those “top drawer” specs include high horsepower 15L engines and 13-speed manual transmissions, which are typically required for mountain driving, he said. As a result, used Class 8 valuations in the Rocky Mountain region jump to $52,875 for long-haul tractors, $50,850 for regional haul units, and $92,000 for vocational models, Lau pointed out.
Going forward, Frost & Sullivan’s Kar believes continuing consolidation within the U.S. trucking market will lead many carriers to keep more of their used iron “in house” to support growing ranks of owner-operators signing on to their fleets.
“Owner-operators and smaller fleets will still be the major drivers of used truck demand,” he added. “That’s because the durability of trucks keeps improving – keeping TCO [total cost of operation] expenses down – and they still are not comfortable with the higher sticker prices for new trucks due to mandated 2010 emissions control technology.”