From a distance it’s hard to see much in common between Monty Python and used truck managers. But, spend any time with the latter and it becomes clear, they also like to look on the bright side.
After a nearly 18-month stretch of spectacular, unprecedented revenue and sales growth, the used truck market has been on the downswing for several months. Within the industry, the current market slowdown has been challenging but not unexpected. No one believed used truck values and sales would boom in perpetuity; even at the market’s highest points last winter, many in the space were cautious about getting too comfortable or believe the inflated prices represented a new reality.
Which is why now, as each monthly market update shows another slip in sales prices, used truck managers are trying to remain calm. This hasn’t been the hot sales summer the industry wanted, but many external market factors that drive used truck demand remain strong.
Through inventory judiciousness, intelligent marketing and a little belt tightening, the used truck market hopefully can withstand this summer’s doldrums until the market inevitably picks up again.
Everything that’s happening now has happened before — and will happen again.
“We just reached a point where used trucks got way overpriced. We were selling [used] trucks retail for much more than they had cost when they were new and you can’t do that forever,” says Nick Lombardo of Arrow Truck Sales. Also, a Used Truck Association (UTA) board member, Lombardo says he had many conversations with fellow UTA members last winter where everyone attempted to predict when and how the market would correct.
“We knew there would be a point where it would have to end,” he says. “We didn’t know if it would be a cliff event or more of a steady drop but we all knew the market couldn’t sustain that pace.”
Sales data now shows the slowdown mostly began in late-March or April, though many in the used truck space didn’t identify the market’s hot streak was officially over until weeks later. Similar to prior cycles, the auction and wholesale space saw prices fall first, with retail prices following about a month after.
“Our first quarter was monumental, incredibly good, and even into April prices for us were mostly stable,” says Mike Roney, corporate buyer and wholesale manager, Premier Truck Group, and another UTA board member. “I can’t say exactly when things changed, but I know by mid-May it was clear to all of us that something was happening.”
“We sold a group of trucks at auction in May and by the time June hit those same trucks were down $25,000 in value,” he adds. “Once everyone realized [the market correction was underway], it was quick that prices fell.”
Now several months into the downturn, prices in both channels remain well below their first quarter peaks but substantially higher than where they were in the last slowdown in 2020. Yet compared to where the market stood six months ago, used truck dealers say the higher historical prices don’t help solve the inventory challenges they’re facing. Used truck dealers bought aggressively through most of 2021 and into 2022 because demand was outpacing supply.
What makes this year’s market correction unique is that essentially remains the case today.
New truck production has not increased in 2022. The freight market has softened as the year has progressed and shippers’ conditions have improved, but the amount of freight being moved across North America remains historically high. Record fuel prices surged into the public’s consciousness in the spring but have now fallen several weeks in a row. A recession remains a risk for the U.S. economy but the inflationary pressures introduced in the spring have receded a bit.
It’s clear now the confluence of those external factors hitting the used truck space at the same time triggered the market’s downturn.
“It was the perfect storm quite honestly,” says Jeff Bowling, director of used trucks, Doggett Freightliner. “A lot of our customers saw everything that was happening and hit the pause button.”
When they did, dealers suddenly had inventory they anticipated would move and it didn’t. Inventories rose quickly, so dealers initiated safety measures such as routing more units to auctions — driving supply up and pricing down in that sector — before instituting wholesale buying freezes and prioritizing the retail market to get out from excessive inventory.
Hard as it may seem to believe considering how much inventory remains on lots, those safety measures are working. Retail pricing is down but late-model, low-mileage equipment continues to earn strong prices. Dealers who have desirable trucks are turning them.
“Our customers who stopped buying have come back to us and are buying trucks cheaper than they did before,” Bowling says. “They’re buying the same trucks they bought earlier, but for a lower price.”
Which means the used truck market’s only path out of this downturn is through it. It’s time for dealers to sell again.
Pricing must fall to account for the rise in inventory; trucks that remain in retail demand should be prioritized; trucks that may have value to customer segments should be marketed aggressively and intentionally; trade-in value estimates should be transparent and, if possible, provided in advance. And when a customer shows interest in a deal, salespeople need to be ready to negotiate again.
“For a year and a half, we didn’t have to do that,” says Roney. “We told the customer the price and it was up to them.”
Industry market reports released in the coming days will show pricing fell in July (August figures will likely be the same), but nonetheless some optimism remains in the channel. Barring a full-scale recession event, many in the used truck market expect wholesale sales and retail prices to begin rebounding before the end of the year.
“I think the market will be stable or we’ll start to see an increase in price,” says Bowling, who mentions the ongoing new truck production delays as the used market’s biggest and best advocate. “I know a lot of new truck customers are not getting the number of trucks they wanted; they’re going to need equipment.”
Roney adds that despite the downswing in sales volume over the last quarter-plus, most used buyers still appear to have the revenue streams to support their earlier purchases and the funds to further invest in more equipment as needed. “We aren’t seeing a lot of repos yet, and lenders are still lending,” he says.
He adds while he isn’t sure when the market will bounce back, he’s optimistic this downswing will be shorter than the preceding hot streak.
“I think everyone is trying to get their inventory off the books so we can see where we stand,” he says.
Lombardo also takes a positive tone in looking at the months ahead.
“Used truck dealers are some of the most resilient and adaptable people you will ever meet,” he says. “We were in a seller’s market and now we’re in a buyer’s market. We know how to ride the roller coaster and figure things out.”