The Dented Used-Truck Market

Jim Park

The past five years have not been kind to used-truck sellers. In 2006, anything with a diesel engine and more than four wheels practically drove itself off the lot. The following year, calendar 2007, was a horrible year for the OEs but good for used trucks. With customers widely eschewing the first of the DPF-equipped EPA-2007 models, demand for used trucks remained solid. But then in 2008 the economy tanked and so did truck sales — new and used. Just when the used people thought they’d have the world by the tail, the world decided to stay home.

Then, during the depths of the recession when many people thought it couldn’t get much worse, it did. Fleets decided it would be a good idea to hang on to their trucks longer than usual, extending their trade cycles to preserve cash and borrowing capacity. That move turned out to be a nightmare for fleets and it remains a problem for used truck dealers.

While we all saw it coming, the after-shocks of the 2007 pre-buy and the recession and extended trade cycles are still being felt by used truck dealers.

Extended Trade Cycles

“Very few new trucks were sold between November 2008 and 2010,” points out Bert Downton, used truck sales manager at Custom Truck Sales in Regina. “Consequently, a very limited number of used trucks came back on trade, and the ones we are seeing are pretty long in the tooth because of the extended trade cycles.”

“Many fleets kept their trucks 18 to 24 months longer than usual,” says Vik Gupta, branch manager of Arrow Truck Sales in Mississauga. “That pushed demand down at the time by 20 to 30 percent, and the supply of used trucks dropped by about 50 percent. And that’s still with us.”

The other effect of extended trade cycles was the condition the trucks were in when they finally came back on trade. Under normal circumstances, a fleet will trade a truck within three to five years with 600,000 to 800,000 kilometers on the clock. Trucks that had run through longer trade cycles are coming in with a million-plus on them, and they are pretty well worn out.

Rode Hard, Put Away Wet

There are a lot of terrible trucks out there nobody wants, Downton says. “They aren’t even worth refurbishing.”

In previous years, a dealer would take an older truck on condition that the seller give up some of the refurbishing costs on the trade. Today, Downton says, they have too many miles on them and they need way too much work. “We can get all kinds of old highway trucks with millions of kilometers on them, but we have to put $10,000 into them just get them saleable,” Downton says. “It’s not worth it.”

The trucks he’s referring to would be ’05 or ’06 MY, that normally would have seen their first trade during 2009 or 2010. Then, with the economy floundering, nobody was spending money on new equipment. Fleets hung on to trucks much longer than has historically been the case. Extending trade cycles cost fleets a great deal more money in maintenance and repair than they anticipated, and the mileage on the trucks is costing them again at trade in.

“Even the farmers don’t want them,” Downton says. “We used to sell 10-year-old trucks to farmers all day long. They’d use them for a couple of weeks a year, maximum, so they’d last forever. In Saskatchewan, now, the farmers have got it in their heads that they need heavy-spec trucks. The old highway trucks just aren’t moving in these parts.”

Next door in Manitoba, the farmers are buying older highway trucks, notes Brian Sarna, Sales Manager at Freightliner Manitoba. “At a million or a million-two hundred thousand kilometers, it’s not a highway truck anymore,” Sarna says of the trades he’s taking in today. “We have a contractor making day cabs and straight trucks out of them, and on a farm those trucks will last another 20 years. They are driven only a few months of the year.”

At one time, Freightliner Manitoba was selling pre-EPA-’07 trucks to places such as Russia, Mozambique and South Africa, but those markets dried up with the requirement for Ultra-Low Sulfur diesel. That fuel is unavailable in developing countries, and there were some political concerns with truck sales to some countries. Today, those markets are gone, leaving dealers here trying to find markets for used up, high-mileage highway trucks with technology nobody wants.

Where to From Here?

The market will recover from DPFs and extended trade cycles. Just like the beginning of the downturn, the end can be seen in recent-year new truck sales. Until June, new truck orders have been strong. They dropped precipitously then, and July’s figures don’t look any better (at the time of writng). Used-truck sellers can expect a good volume of used trucks to hit the market in 2015 through 2017 time period — just when new trucks set up to meet the new fuel economy standards are hitting the market.

Whether that will hurt sales of used trucks remains to be seen, but at least the market won’t be struggling with DPFs.

Downton says heavy-spec trucks are selling well in Saskatchewan and Alberta, and that will continue as long as there’s activity on the oil patch.

In Ontario, Adam Davy of Davy Truck Sales sees customers becoming more accepting of the EPA-07 generation trucks, but they are taking precautions.

“Customers are embracing warranties,” he says. “That wasn’t always the case in used trucks. We’re offering plans from six to 24 months, and customers are taking it.”

Gupta notes the other side of the recession has impacted his customer base.

“We’ve seen a little drop in clientele,” he admits. “Some got hurt during the recession, and others are taking a more cautious approach to the market.”

He also sees more customers taking warranty on their used trucks, and with it, he’s urging customers to take a more business-like approach to the truck.

“It’s a used truck. It’s going to break down,” Gupta tells his customers. “You have to be prepared for that. I urge them to prepare for breakdown, and write those costs into the business plan so they won’t come as a surprise.”

If there is one serious downside to the advanced technology that has emerged in recent years, it’s the challenge of repairing it. It’s no longer the realm of the driveway mechanic. Fault codes and glowing amber dash lamps make people nervous because they don’t understand them and they can’t repair them at home.

“We have to work with the customer so they understand what they are buying, and what they can expect from it,” he notes. “Most of the trucks coming to market today have had their problems. They were repaired by their first owner, and they are good for several more years, but they will need service and maintenance. As long as they know what to expect, they can plan for it. That’s our job as dealers.”

A Look Ahead

The next five years for the used-truck market looks better than the past five, but there will be challenges. “A lot of the extended-trade-cycle trucks have yet to come back, so they will have to be dealt with,” says Sarna. “We’ll be clearing out that inventory for a while.

On the up side, new truck prices are creeping up again, and that has always been good for the used-truck business. But at least with today’s trucks — with improved aerodynamics, better fuel economy and more reliable components — there’s a perception that buyers are getting something for their money. That wasn’t the case in 2007.

 

Jim Park

Jim Park was a CDL driver and owner-operator from 1978 until 1998, when he began his second career as a trucking journalist. During that career transition, he hosted an overnight radio show on a Hamilton, Ontario radio station and later went on to anchor the trucking news in SiriusXM's Road Dog Trucking channel. Jim is a regular contributor to Today's Trucking and Trucknews.com, and produces Focus On and On the Spot test drive videos.

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