Some Thoughts On The Current Used Truck Market
As an individual living and working in the commercial truck business for 43 years, I’ve never seen anything like today’s market. Used trucks gained nearly 70% in value in 2021, and good used trucks are very hard to find. This paper is intended to provide some market perspective around what is happening in the market, how we got here, and what to expect in the future.
The Commercial Truck Market
Trucking Industry Analysis
As an individual living and working in the commercial truck business for 43 years, I’ve never seen anything like today’s market. Used trucks gained nearly 70% in value in 2021, and good used trucks are very hard to find. This paper is intended to provide some market perspective around what is happening in the market, how we got here, and what to expect in the future. Do you buy, sell, or to wait it out for the market to settle down? This article won’t tell you what to do, but will help to understand the various aspects that have gotten us to the market we are experiencing today.
Why Is There A Semi-Truck Shortage?
Demand for New Trucks
- There are multiple answers to this question. Looking back, as we entered January 2020 there was a significant demand for new trucks. The trucking economy was very good, and the nation’s truck fleet was very busy racking up miles. Freight rates were fairly good, and there was a strong need for new trucks to replace aging units in America’s fleets. Lead times for new trucks were a bit extended, but not too badly.
COVID-19's Impact on Truck Manufacturing
- In February, businesses and manufacturing plants began to shut down due to the COVID-19 pandemic. That included commercial truck manufacturing. While many truck fleets that serviced these brick-and-mortar businesses were going idle, others began to get busy serving the home delivery and last mile markets. At that point in time, used truck availability was pretty good.
Increased Demand for Used Trucks
- It was in the spring of 2020 that demand for used trucks took off due to those rising freight rates. These freight rates brought new opportunities for owner operators and small fleets. At the same time, new truck deliveries to dealerships started to stall because of idled production lines and workers still at home.
Trucking Supply and Demand
- With no deliveries of trucks, larger fleets were prevented from releasing their used trucks since there were no new trucks to replace them. This is the point that the pool of available used trucks began to dry up. As supply outran demand, the price of used trucks began to rise.
- Toward the third quarter of 2020, truck manufacturers began to open back up and gradually get back to production of new trucks. But their efforts were very negatively affected by their suppliers who were having their own production challenges. Consequently, new truck production was very slow to get up to speed, and new truck deliveries resumed at a very slow pace. During that time frame, the fleets were continuing to get busy with more deliveries of goods. Since they needed more trucks to keep up, they kept their old units in service when they took delivery of a new truck. In the past, the old truck would have gone into the used truck pool of available trucks. Now, no trucks were coming back in to replace the supply.
- This is when we really saw the impact of stopping and slowing of manufacturing due to COVID-19.
Used Truck Mileage
- The dominos continued to fall from the slowdown in new truck deliveries as that extended the used truck in-service cycle by nearly a year. The average mileage of the used truck rose by nearly 100,000 miles, almost overnight.
- Moving into 2021, the new truck manufacturing industry takes another blow with a semiconductor shortage. This is significant and its significance is unfamiliar to most people. Did you know that the average new truck has over 30 semiconductor chips? Once again, the new truck production cycle was hit by unexpected supply chain shortages. An even bigger hit to the already crippled used truck selling and buying cycle.
Truck Parts Shortage
- As we hit the spring of 2021, you guessed it, a shortage of truck parts. The parts supply chain impacts the available supply of used trucks because at any given time a fleet has trucks that are down, for longer periods of time waiting for parts. That causes fleets to hold on to more trucks to fill in for downed trucks. Are you seeing a trend yet? Even fewer trucks entering the used truck sales cycle.
Demand for Automatic Transmission
- Another factor that arose was the demand for used trucks with automatic transmissions. As the driver pool evolved over time, most new drivers were only qualified to drive automatic transmissions. This created a huge demand for trucks with automatic or automated manual transmissions.
Why Are Semi-Trucks Expensive Right Now?
- As 2021 wore on, the availability of used trucks diminished, causing prices to rise for dealerships who purchase trucks. Prices climbed higher, month over month, as truck inventory sunk lower. By the end of 2021, the situation was critical, and prices had risen by nearly 70%. It affected every brand, every age and mileage range, and even affected the price of salvaged trucks as people pulled trucks out of the weeds and restored them to service.
Trucking Industry Outlook 2022
There is no crystal ball, but many industry professionals are saying this situation is not going away anytime soon. New truck deliveries will continue to drag on at a slow pace and below normal numbers as there are still many supply chain challenges. Factories are continuing to suffer absenteeism from new COVID strains, and some people have decided to exit or take a break from the workplace for now. Fleets will continue to hang on to their older trucks. Those who traditionally buy new trucks will also continue to absorb all the late model used trucks they can find, as new truck stock remains lower than normal. Ton miles remain very high, causing trucks to wear out and be removed from service at a higher rate than what is typical. Consumer demand for goods remains high, which bodes well for continued strong freight rates.
All of these combined factors should continue to keep the supply of used trucks very tight, and prices strong.
So what do you do if you need a good used truck?
How to Buy a Used Truck
Do you pay the price or wait until prices go down? You have to make your own decision. You must look at a truck as a revenue producing tool for your business and decide if the return on the investment is sufficient to justify the price. Freight revenues are higher than they have ever been, and it just might make business sense to pay the price and get in on the hot freight market as opposed to sitting on the sidelines.
Another thing to consider is drivers. Do you need to update your equipment in order to attract or retain good drivers? Do you have a good truck to trade? If so, you can get more for your used truck than ever before and that can help offset the higher price.
These challenges are impacting everyone. You are not alone. Every dealership and every buyer are facing the same circumstances. Be aware of people overpromising that your experience will be different. The market is the market; one person trying to sell you a truck can’t change it.
These challenges are impacting everyone. You are not alone. Every dealership and every buyer are facing the same circumstances.
Vice President of Used Truck Sales, Peach State Truck Centers