May 1 marks the first milestone in the very gradual reopening of the American economy. Many states have slightly dialed back the most stringent restrictions on business and public activity, cracking open the door for increased commerce. What does this mean for the used truck market?
We know the trucking industry has fared better than many industries during this crisis, mainly due to consumer stockpiling in the earlier stages. This dynamic helped keep truck buying and selling activity from collapsing completely. The freight environment has pulled back since hoarding behavior diminished, but goods still need to be restocked. In the short term, the mild reopening of business and industry (particularly automotive manufacturing) could restore some degree of volume. This dynamic has so far resulted in relatively stable auction volumes but much lower pricing, suggesting dealers and end users still need replacement trucks but are extremely cautious about what they’ll pay. We don’t yet have enough April retail data to make concrete observations about that channel, but we assume extreme caution is driving decisions there as well.
So that’s the demand side. Looking at supply, our pre-virus forecast showed used truck inventories improving somewhat later this year due to a selldown of inventory and lower volume of trades. Currently, we expect a pullback in new truck deliveries in upcoming months, meaning fewer trades. Normally this would be a good thing for pricing, but since this is all taking place in a lower-demand environment, the inventory selldown will take longer.
The bottom line is market conditions won’t improve much until the consumer starts buying again. That could take some time, as a monumental number of people lost their jobs in March and April, and many of those jobs will not be made available again anytime soon. In addition, many people who still have jobs have had their hours and/or pay cut. Despite these factors, we still see some chance of a moderate spike in overall conditions in the 3rd quarter if the “reopening” continues relatively steadily. In this scenario, we would now be in the trough of the used truck market, with a mild recovery starting in a month or two.
On a final note, you may notice our published values seem higher than actual market conditions in some cases. This is due to a somewhat conservative approach to devaluation in April, as well as limitations on how frequently we can update our published figures. As always, I’m happy to discuss the market with anyone at any time.