Used Class 8 truck prices continue to surge, with October costs up 54% year-over-year and cumulative gains of 36% since the start of the year. This data comes from a recent report by ACT Research.

Steve Tam, Vice President at ACT Research, said the average retail price for used Class 8 trucks in October was $72,200, up from $46,900 in October 2020. He noted that most of these trucks were sleeper models.

In the auction market, some used trucks are selling for more than the cost of new 'standard' Class 8 tractors (about $140,000 per sleeper unit). Tam said, 'I think this is the first time the industry has experienced this.'

Compounding the issue is a shortage of semiconductors used extensively in new tractors. Supply chain constraints have slowed production of new Class 8 trucks, which may be the biggest factor driving up used truck prices.

Facing semiconductor shortages and truck demand, Avery Vise, Vice President of Freight at FTR, worries the transportation industry will add a new challenge alongside labor shortages, insufficient truck parking, and real estate issues for less-than-truckload terminals. Vise said, 'In 2022, we may see a more severe truck shortage than a driver shortage. We are already seeing signs of this in some regions.'

It is widely believed in the industry that large carriers will not bear additional costs due to market conditions, but small fleets and owner-operators may face more difficult financial situations when spot freight rates decline.

Soaring Costs and Deepening Debt Risks

Typically, lenders restrict small players from over-borrowing for used trucks, but current market conditions have made capital flow more freely. Vise said, 'Financing institutions are quite optimistic. However, as conditions continue to tighten—and they inevitably will—the problem will become increasingly serious.' He added that consumer spending is unlikely to sustain current levels in the long term, which will make financing more difficult for small fleets.

Buyers of used sleeper trucks may take on higher costs and deeper debt. Used truck buyers are often owner-operators or small carriers, who are particularly vulnerable to high debt and narrowing profit margins. Vise noted that these buyers are typically highly leveraged due to a lack of working capital. When diesel prices rise, small carriers and owner-operators often bear the brunt because they must pay fuel bills immediately.

'We may see a more severe truck shortage than a driver shortage [in 2022].'

—Avery Vise, Vice President of Freight at FTR

Used truck costs are so high that an official from the Owner-Operator Independent Drivers Association (OOIDA) warns buyers to be wary of excessive debt. Todd Spencer, President and CEO of OOIDA, said that although spot freight rates currently provide owner-operators with ample monthly cash flow, conditions could change. He said, 'The trucking industry has seen bubbles burst before. That's the reality. You make business decisions out there. In the short term, we might be doing well. But in the long term? Essentially, don't overextend.'

There is currently little sign that upward pressure on used truck prices will ease soon. To the detriment of future buyers, no one seems to know exactly the size of the used truck inventory in North America. Tam said, 'You can't make them stand still to count them.'

Vise said he has heard that some fleets do not even have trucks to place newly recruited drivers. This makes fleets more willing to keep existing vehicles, further pushing up prices. It also means small carriers and owner-operators will face greater difficulty in adding capacity than large fleets. Vise noted that high used truck prices alone could prevent company drivers from becoming independent owner-operators.

A Seller's Market Emerges for Used Trucks

While some fleets face financial challenges in acquiring trucks, other players benefit from the seller's market.

Ryder reported in a recent earnings call that its fleet management division posted pre-tax earnings of $186 million, an increase of $170 million year-over-year, with $93 million coming from higher gains on used vehicle sales. Ryder CFO John Diez said tractor gains increased 32% sequentially, and truck gains increased 27%. Diez said, 'Higher sales gains reflect significant improvements in market prices.'

However, supply chain issues limiting new truck production have cascaded into the used truck market, reducing Ryder's used truck inventory.

Supply Chain Constraints Reduce Used Truck Sales and Inventory

Ryder's quarterly used truck sales and inventory data (chart omitted)

Penske reported in its October 27 earnings call that revenue jumped partly due to used truck demand. CEO Roger Penske said on the call that business growth was driven by delays of about 13 months in new vehicle deliveries from OEMs. This shortage is compounded by rising freight demand. Penske said, 'This will drive this business for the next 12 to even 24 months. That's why used truck prices are rising, because most fleets today cannot get new trucks immediately. So they keep using older trucks, possibly extending their use by five to six months. This also pushes up used truck values, but I don't see a slowdown.'

'You can't make [used trucks] stand still to count them.'

—Steve Tam, Vice President at ACT Research

Fleet executives also noted they took advantage of higher market values to sell older equipment. Schneider CFO Steve Bruffett said on an October 28 investor call that the company 'took advantage of the strong used equipment market in the third quarter.' Werner CEO Derek Leathers said on the same day's call that third-quarter used truck sales prices were 'better than expected,' with gains of $15.3 million, up from $13.5 million in the second quarter.

Buyers of used trucks eventually become sellers. Older equipment continues to cascade down to smaller fleets, with age increasing and prices decreasing. However, when initial prices are high and the market remains tight, resale prices will stay elevated. Research from J.D. Power seems to confirm this: in October, the average retail price for 2017 model-year sleeper trucks was $72,682, for 2016 models it was $55,904, while the average sleeper price in October 2020 was $38,734. Tam said, 'It filters down through the whole process.'