Used Truck Prices Buoyed by Rising Foreign Demand
This story appears in the April 28 print edition of Transport Topics.
An unprecedented wave of exports, mostly to Russia, has cushioned a downturn in the Class 8 used-truck business, which has been hurt by high fuel prices and a weak freight market, according to industry executives.
The overseas demand has helped firm up prices for used units, the officials said; historically, economic downturns have sent used heavy-duty truck prices spiraling downward.
While domestic demand for used vehicles has nose-dived because of 鈥渁 decline in economic activity, high fuel prices and liquidity or credit鈥 issues, Carl Heikel, president of used-truck dealer Arrow Truck Sales in Kansas City, Mo., said, 鈥淎merican trucks are very much in demand within Russia.鈥
Heikel said robust economic growth in Russia is providing an abundance of freight for a domestic transportation industry that serves an area almost twice the size of the continental United States.
Stock analyst Thom Albrecht recently estimated that Russian buyers have taken 2,000 to 2,500 used Class 8 trucks a month out of the U.S. market over the past year, as freight levels have declined here.
The most recent data from market research firm R.L. Polk & Co. show U.S. Class 8 used-truck sales in the fourth quarter of 2007 fell modestly to 46,317 units from 49,800 in 2006鈥檚 fourth quarter. Meanwhile, U.S. sales of new Class 8 trucks have plummeted for 15 straight months, and were down 35.2% in March from year-ago levels.
The decline in used sales isn鈥檛 anywhere as severe as it might have been without the foreign used-truck sales and is only a fraction of the last sharp downturn in 2001.
Overseas demand, fueled in part by the slumping U.S. dollar, has 鈥渒ept our numbers up through this year and last year, with the number of trucks that were being exported to Russia and a lot of other countries,鈥 said H.E. 鈥淓ddie鈥 Walker, president of the Used Truck Association in Stockbridge, Ga. Walker is president of Best Used Trucks, a Fort Worth, Texas, dealership.
鈥淭he weak U.S. dollar has helped, but Russia鈥檚 tremendous infrastructure needs and strong global demand for oil have fueled the demand for good, used U.S. equipment,鈥 said Albrecht, who follows trucking stocks for Stephens Inc.
In addition, Arrow鈥檚 Heikel and UTA鈥檚 Walker both said used-truck exports to Latin America, the Middle East and Africa have picked up in recent years.
Truckload carrier Werner Enterprises said used-truck pricing has come under some pressure, but the current wave of exports has helped keep pricing concessions mild.
Werner, which supplements its truckload services with a used-truck division called Fleet Truck Sales, said earlier this month that it received a bit less cash per truck for the units it sold in the first quarter.
John Steele, Werner鈥檚 chief financial officer, said, 鈥淭he worst time for used [trucks] was about six years ago [during the last freight downturn] when prices were off 30%.鈥
Now, 鈥渢he sale of used trucks overseas is helping provide support,鈥 Steele said last month at JPMorgan鈥檚 annual Aviation and Transportation Conference. He said used-truck 鈥減ricing is off 3% to . . . 7%, depending on make, model and mileage.鈥
Stephen Russell, chief executive officer of truckload carrier Celadon Group, said that, because of the steady stream of used-truck exports, the current downturn is the 鈥渇irst freight recession where used-truck prices haven鈥檛 gone down.鈥
Russell also said the foreign sales are helping tighten U.S. freight-hauling capacity, which is 鈥渟hrinking drastically.鈥
Werner, Omaha, Neb., and Celadon, Indianapolis, rank No. 14 and No. 56 respectively on the Transport Topics 100 list of the largest for-hire carriers.
Exported trucks generally are sold at the same price as vehicles that remain in the U.S. market, Arrow鈥檚 Heikel said.
In part, that is because used equipment tends to pass through an intermediary 鈥 usually the U.S. office of a foreign buyer purchasing trucks in wholesale quantities 鈥 before they are shipped to overseas markets.
Meanwhile, at least one European truck manufacturer has pointed to signs that truck demand from Russia and neighboring countries is likely to remain strong for several years.
Swedish truck maker Scania AB, in its annual report, said major industry and infrastructure investments in Russia and Eastern Europe are likely to continue 鈥渇or many years to come,鈥 driving demand for both used and new trucks.
This new export market also is creating opportunities for U.S. truck and parts makers. ArvinMeritor officials recently announced the company would be opening a branch in Moscow to help service the flood of used U.S. trucks.
听