How to work a market on the brink of change
Arrow Truck Sales Inc. recently released a white paper that lays out how two undeniable economic forces will bring used-truck prices back up much sooner than many fleet owners might anticipate given the current state of over-the-road trucking.
Since truck production and sales have fallen to ten-year lows since 2007, Arrow points out, there will be fewer three- to four-year-old trucks available going into next year and beyond. “Today, due to the economy, used-truck inventories are high…prices [are] low. We have been seeing an unprecedented rate of price deterioration over the past 12 months — aerodynamic trucks [have fallen] by some 25%, ‘big & squares’ by as much as 33%,” the report says.
However, Arrow goes on to echo the view of many economists that by 2011 “we should begin seeing freight tonnage begin to increase as the economy starts coming out of the doldrums. The demand will definitely begin to increase for buyers looking to replace units or expand their fleets. Used-truck inventories will be lower…prices [will be] higher. There are a limited number of buyers out there today and plenty of trucks. And as the economy begins to recover over the next few quarters, the demand will definitely increase.”
The anticipated general economic recovery, slow and steady as it may be, is the first force at work. The second is that Washington, DC-based dynamo, the Environmental Protection Agency (EPA). “EPA regulations affected sales, pre-buys and prices in 2004 and 2007,” states Arrow. “But EPA 2010 regulations are now going to substantially raise the purchase price of new trucks, in some cases by as much as $10,000 per unit. What will happen when new truck prices increase? Used-truck prices will increase as well.
“So in effect,” the company continues, “there are two separate conditions that will begin putting upward pressure on prices. First, the higher prices on 2010 models will increase the future prices of used equipment, which will result in higher prices on those three- to four-year-old models. Second, the current low production output will decrease future supply, while the demand will be escalating.”
Take all that into account, says Arrow, and the bottom line should be obvious: “There's never been a better time to buy, and waiting to buy may adversely affect your ability to replace or expand your fleet in the future” as inventories again begin to drop.
But Arrow also argues that buyers should bear in mind how today's used trucks differ from what was traditionally sold in this market. “Comparative prices for pre-owned trucks have never provided so much value,” says the company. “Today's buyer can get more truck, more features and better fuel economy for fewer dollars. Plain and simple, you get more truck for the money.”
According to Arrow, in normal economic conditions, “sales history and statistics tell us that a four-year-old truck sold for about 50% of the cost of a new truck.” But today, that percentage is in the 33% range. “That means instead of getting two used trucks for the price of a new one, buyers can now get three trucks for the price of one new truck. … The comparative prices for used trucks have not been at current levels for nearly twenty years.”
The white paper can be accessed at www.arrowtruck.com under the “Resource Center” tab.