The Class 8 Market has Crested the Peak... for Now
After 18 months of unprecedented price appreciation, used truck pricing looks to have crested the peak. Pricing is still extremely high by historical standards, but hammer prices for all trucks sold in April (particularly the second half of the month) were noticeably lower than earlier in the year.
Looking at two- to six-year-old trucks, April’s average pricing for our benchmark was as follows:
- Model year 2021: No trucks sold in April
- Model year 2020: $153,580; $5,920 (3.7%) lower than March
- Model year 2019: $112,785; $4,962 (4.2%) lower than March
- Model year 2018: $98,188; $2,879 (3.0%) higher than March
- Model year 2017: $59,302; $14,682 (19.8%) lower than March
In April, three- to five-year-old trucks averaged 2.1% less money than March, and 75.5% more money than April 2021. Year over year, late-model trucks sold in the first 4 months of 2022 averaged 112.2% more money than the same period of 2021. The extreme drop in model-year 2017 trucks in the table above is due partly to a low-spec mix of trucks sold in April combined with a small sample size that provides a somewhat misleading result. Nonetheless, pricing for 6-year-old trucks was still clearly lower than March.
The socioeconomic impact of the post-shutdown “return towards normality” is finally emerging as we near the second half of the year. As it pertains to our industry, the end of individual stimulus, nonzero interest rates, increased inventories, a fully-functional service industry, and a widespread return-to-office appear to have finally caused the freight environment to pull back from white-hot conditions. Spot rates started declining in early March, and freight volume has also cooled since then. Combine that data with a greatly expanded number of seated trucks available to move that freight, and you have the ingredients for a pullback from extreme used truck valuations.
To be clear, used truck pricing is currently only moderately off the highest level in modern history. For perspective, in the 11-year period between the end of the Great Recession and the beginning of the COVID era, the typical 4-year-old sleeper tractor sold at auction in a range of roughly $30,000-$50,000, ebbing and flowing with traditional boom and bust cycles. That same 4-year-old sleeper peaked at about $118,000 early this year – a roughly 136% increase over the highest pre-COVID peak. Hopefully, no one thought a 130%+ increase in pricing over the span of 18 months was the permanent new normal, and we’ve certainly advised clients since day one that pricing would eventually decline back towards trend.
So our question now is how much will pricing pull back, and how quickly? In terms of time, our most recent boom-to-bust pricing cycle took 6-8 months to unfold. It is likely any upcoming bust cycle will take at least that long to play out. Positive factors supporting pricing include a freight market artificially limited by overseas production shutdowns and shipping bottlenecks, a strong industrial side of the economy, and healthy consumer spending (just no longer weighted towards goods). On the negative side, we’re assuming March’s strong new truck delivery figure was not an anomaly, meaning upcoming months will feature increased capacity, more trade-ins, and a higher volume of used trucks available. And downward movement in freight measures are clearly a trend.
Weighing all these factors, we see some degradation in pricing continuing into 2023, as values work their way down to a level somewhat higher than historical trend. Expect pricing to change in fits and starts, not a nice, predictable pattern.