Hold vs. Sell – Is Now the Right Time to Dispose of Your Used Assets?
If you’ve ever tried to dispose of your used trucks, you know that the value of those assets can increase or decrease drastically in a matter of months. That is a fact in normal times…but we are decidedly not living in normal times right now. So how is that impacting the market for used trucks? To find out, we asked Dale Tower, Vice President of Remarketing for AmeriQuest Remarketing Services, a Corcentric company, to fill us in on how the market looks right now and what to expect in the future.
How have resale values changed and are expected to change throughout the rest of 2020?
2020 started out with generally a good economy carried over from 2019 but there was a rapidly building inventory of surplus. This surplus started building at the end of 2018. Initially this was the effect of robust new truck sales over the past 3-4 years that brought a much heavier than normal volume of returns to the used market. Then other factors occurred that further expanded the build. First, the transportation spot rates fell which negatively impacted the sales of used trucks to owner-operators. Then COVID-19 arrived and significantly reduced transportation volume and tonnage and further damaged used truck sales. The net result of this perfect storm resulted in a serious glut of used trucks which steadily grew and maintained up till until a few weeks ago. Net effect: used truck values plummeted during this overabundance of inventory.
Please note this inventory growth in the chart below.
|Class 8 Advertised|
How has the current environment changed the way you should market used equipment?
Used trucks are indeed a commodity and the higher supply over demand greatly deflated values and created one of the better buyers’ markets since the beginning of the year. During this time, the competition for buyers was fierce, meaning all fleets and dealers had to be hyper-aggressive with their marketing tactics and pricing. Buyers are always looking for the cleanest trucks in the best condition with the best specification at the best price. The difference was, in this high inventory market condition, they did not have to hunt very hard as these trucks were everywhere. If the trucks you were selling did not meet these conditions, then you had to make it up with excessively competitive pricing or other incentives like adding warranty, low financing, new tires etc.
What types of equipment are seeing a surge in resale value (and might make sense to sell sooner than planned)?
Again per the chart above, the available inventory of class 8 sleepers and day cabs has very recently tightened up and trucks are a little harder to find. This closer balance of supply and demand has allowed prices to recover some. This condition may be short lived so it may be a really good time to try and promptly dispose of some of your surplus or underutilized equipment. The item that provides optimism for a sustained recovery is the transportation spot rates that drive owner-operator truck purchases. This has increased dramatically for the past few weeks. If this continues, this market recovery could accelerate even more. There has also been a very large surge in light-duty delivery equipment as all on-line retailers have struggled to keep up with the sudden high demand for online purchases and home delivery since the arrival of COVID-19. Our view is this big shift in demand will likely live past the epidemic and cure as the shopping habits of all Americans may likely be altered for a long time.
How can fleets adjust their overall plan to accommodate a new timeline for selling used equipment?
That is now a custom requirement for each fleet as each industry has been affected differently due to the pandemic. For instance, grocery, cleaning, and medical supplies have not missed a beat in sales volume and actually had substantial peaks of activity during this crisis. Again, home delivery has surged and mostly benefited lighter duty delivery trucks. Due to all of the unknowns in the economy, new truck sales have been significantly impacted in 2020. Fleets are holding on to their existing trucks and running them longer. This may be a positive thing for used truck values. Bottom line: watch your own fleet utilization and closely watch the used market at the same time. When there appears to be sustainable higher activity in the used market and prices recover, that obviously would be a great time to replace with new. If your older fleet is getting eaten up with excessively high running cost, then that may force your hand regardless of the used market pricing.
See how Corcentric can help optimize the return on your used assets.