Commercial Truck Blog

Why has the Boom in New Truck Sales Not Yet Resulted in an Influx of Trades?

For over a year now, I’ve been cautioning dealers, OEM’s, finance companies, and anyone else with skin in the game to expect an eventual increase in trade-ins and corresponding decrease in used truck values. After all, the economy can only support so many trucks, right? Well, turns out the economy actually grew enough to absorb the increased number of new trucks put into service, and then some. This time around, any downturn in used truck values will hinge more on economic conditions than supply of incoming trades. Economic data and yearly delivery figures explain the situation.

According to the American Trucking Association’s Freight Transportation Forecast 2017-2028, as reported in Fleet Owner, there were roughly 150,000 more Class 8 trucks in service in 2018 compared to the last new truck order boom in 2014. In percentage terms, that increase is only about 3.9%. But in an industry that can realistically only build about 300,000 trucks per year, 150,000 is a very meaningful number. To make up for OEMs’ inability to build enough new trucks, fleets kept older trucks in service and purchased low-mileage used trucks.

Diving deeper into the figures, the economy ultimately “needed” about 95,000 more trucks in 2017 than 2016, but OEM’s had only delivered about 6,000 more. The same scenario held true in 2018 – the country needed an additional 97,000 trucks, but OEM’s had only delivered about 58,000 more. So the economy had expanded to the point where there was now a two-year “shortage” of new trucks of about 128,000. OEM’s greatly ramped up their deliveries from 2017 to 2018, from about 192,000 to 250,000, for an increase of about 58,000 – still 70,000 short of the needed number. OEMs are whittling away at that shortage as we speak, albeit at a “managed” pace. So trucking companies continue to hold on to their older iron and purchase low-mileage used trucks, which is why values continue to defy gravity.

Looking forward, the big question is how many trucks the economy will need in 2019. There are two obvious factors pointing to flat or downward demand. First, the manufacturing side of the economy stopped “front-loading” raw material inventory in mid-2018. This strategy was employed to avoid potential tariff increases on Chinese materials. Second, exports have contracted, as a symptom of a cooling global market and the impact of the tariff war. Other economic measures are also looking less hot than last year, but it’s too early to identify any trends just yet.

On the truck supply side, factories are generally maxing out two shifts, which is about as fast as is prudent. When the truck shortage is eventually alleviated and fleets trade in a greater percentage of their existing inventory, the economy will either be strong enough to limit the impact to values, or it will have contracted to the point where the impact will be more notable. We’re just coming out of the winter season, plus the government shutdown postponed the release of selected data. So figures released in upcoming weeks will help us answer this question.