If the used truck market hasn't hit bottom yet, it'll get awfully close this year. The inventory for used Class 8 tractors typically hovers at 170,000 units a year, according to the Used Truck Assn. Last year, however, this number ballooned up to 200,000, creating a major market glut. The projections for 2002, however, are even worse: Between 240,000 and 310,000 Class 8 used trucks could be on the market, a 20-65% jump in inventory in just one year.
Industry analyst Martin Labbe says economic conditions both inside and outside trucking could make the used truck market even more precarious. “Freight growth will continue to be slow in 2002,” he says. “While fuel prices will be lower, carriers will see their costs increase 12% this year. Driver wages will increase 24% through 2004 and insurance will be up 15% a year. On average, 60% of fleet operating costs will face annual increases in excess of 10%.”
According to Labbe, those factors could force many small and medium fleets into bankruptcy, increase the number of mergers among large fleets, and push more owner-operators to become full-time fleet drivers. The upshot of all this is fewer buyers for used trucks. Labbe expects prices to remain soft until 2004.
The economic aftershocks of the terrorist attacks have also affected the used truck market, but not enough to impact the long-term outlook, says Denise Reeves, director of product marketing for Volvo Trucks North America. “Pre-Sept. 11, we saw a lot of demand for used day-cab tractors from private and regional fleets that wanted to expand their operations,” says Reeves. “After Sept. 11, we probably won't see as much demand as we expected from those sectors, but there will be some.”
It is really the economy in general that will be the biggest challenge for the used truck markets. According to Todd Renehan, vp-asset management for Ryder System, “The economic forecasts for 2002 are soft, and freight demand overall is expected to fall.”
POCKETS OF DEMAND
Renehan says demand for Class 5, 6 and 7 used trucks will remain steady, while Class 8 demand will continue to drop. However, he thinks there will be many pockets of demand for used trucks, including private fleets, for-hire carriers and even owner-operators, depending on their financial position and the types of vehicles they're looking for.
According to Paul Spokas, president of Heavy Duty Marketing Assoc., “There's a shortage of late-model, low-mileage day cabs. Demand is especially high for two- and three-axle day cabs. Demand for used medium-duty trucks is also good, as well as heavy-duty vocational units.”
The Achilles' heel of the used truck market, says Spokas, is still the Class 8 sleeper. “There are just too many three-to-four-year-old sleeper tractors out there; prices remain very depressed and will probably stay down for another year-and-a-half to two years.”
Consequently, SelecTrucks, a division of Freightliner LLC, is converting used sleeper tractors to day cabs. “We're refurbishing, refinishing and reconfiguring sleepers into day cabs at our Tooele, UT, plant,” says Jeff Larcom, marketing manager for SelecTrucks.
The reconfigured sleepers go through a 150-point inspection process for all major truck component. and also get new interiors. Customers even have the opportunity change truck specs before the remanufacturing begins.
According to Spokas, buyers in the used truck market want more than just a product; they want to buy into a program. They want a variety of warranties, maintenance contract options and financing. SelecTrucks' reconfiguration program is just one example of the new tactics being employed to sell used trucks.
Another example is Volvo's Generation 2 program, which provides a variety of financing, extended warranties and service options on preowned Volvo VN tractors, which must pass a stringent inspection process conducted by a third-party that's under contract to Volvo.
Qualified buyers are eligible for financing at below-market interest rates through Volvo Commercial Finance. In addition, they get a standard 6-mo./60,000-mi. basic warranty; 12-mo./100,000-mi. and 24-mo./200,000-mi. warranty options; insurance; and Volvo's Fleet Force Card, which gives the buyer preferred parts pricing through the Volvo dealer network.
“This program, which is for owner-operators and small fleets, enables customers to upgrade their trucks and operate from an improved cash flow and interest rate position,” explains Reeves.
Spokas says programs like the ones offered by Volvo and Freightliner can make purchasing used trucks more attractive to buyers in the year ahead. “Used truck retailers — independents and those owned by manufacturers — must be attuned to what buyers want. Dealers can find many creative ways to carve out a niche in the used truck market.”
It's a market ripe for opportunities in the future, says Larcom. “Many fleets are now looking to the used truck market to expand their operations and get good, late model equipment,” he says. “It's an excellent economic opportunity for them, and it will help make 2002 a strong year for us.”
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