With every North American truck maker having temporarily wound down production, the near-term forecast for new truck builds is dismal, and coronavirus-fueled trepidation will soon filter its way into the used market.
The volume of 4-7 year-old trucks sold at auction, according to J.D. Power, was “healthy” in February, rebounding from a typically seasonally low in January. In-person auctions this month have been scaled back in favor of online, which limited sales volume in the first two weeks and indicated volumes this month could drop by as much as 50%.
Last week, however, there was a bounce back in truck numbers, giving reason for optimism about month’s end.
“I just saw a new batch of data from last week’s auctions at one of the auction houses, which shows volume a lot higher than I thought it would be,” said J.D. Power Senior Analyst and Product Manager of Commercial Vehicles Chris Visser. “It it looks like March could end up similar to February in terms of auction sales volume.”
February’s volume was the highest in more than two years but truck pricing was weak. Auction pricing in the first two weeks of March reflected buyer wariness, which Visser said “should surprise no one. There were still buyers out there, but depreciation was higher than in the first two months of the year,” he said. “Once the short-term spike in consumer stockpiling recedes, the shift in freight demand will combine with the used truck oversupply to create a difficult pricing environment.”
Improved depreciation had been a bright spot during the first 60 days of 2020, with rates at auction averaging 1.8% per month through February, “a welcome change from the 3%-plus we’re used to,” Visser said. Retail pricing was stronger than expected in February, with two- and three-year-old models commanding marginally higher prices than the month before. Retail depreciation is averaging 2.6% per month so far this year, “notably better than the second half of 2019, and not far from what we consider historically typical,” he added.
Month-over-month, J.D. Power’s benchmark group of 4-6 year-old trucks brought 1.8% less money at auction last month. In the first two months of 2020, pricing has averaged 28.2% lower than the same period of 2019, and that’s without the economic headwind that COVID-19 has become.
“Pricing in the first two weeks [of March] was better than it could have been, but still probably down roughly 10%,” Visser said. “Consumer stockpiling could continue longer than expected, which would support demand for trucks and keep pricing from dropping more dramatically. Once that activity ends, the true impact of the economic pullback will be felt.”
Truck OEMs, all of which have elected to throttle down assembly operations for roughly at least two weeks, could help new truck inventory levels, but Visser doesn’t expect to see much spillover benefit to the used truck market.
“Ceasing production for two weeks or more should be a mild assist to cutting off the supply of new trucks,” he said, adding the shutdown “will basically right-size production to the deteriorating demand we expect in the second quarter.”
The situation isn’t likely to meaningfully improve until the virus infection rate stabilizes, quarantines subside and the economy starts to heal. Visser said the recent spike in freight volumes is likely a short-term anomaly fueled by stockpiling that he expects to decline “in the next couple of weeks.
The trucking industry will fare better than most in the next few months, but widespread quarantines, business closures, and unemployment are serious hits to the economy,” he said. “These hits should cause freight volumes to pull back notably in the second and probably at least part of the third quarters.”
“Hate to say it, but I think the next couple of months are going to be more difficult than a lot of people are admitting to themselves right now,” Visser added. “That said, one way or another, this pandemic will eventually recede, the U.S. will remain the world’s largest economy by most measures, and the dollar will remain the world’s currency of choice. We’ll all have a lot of rebuilding to do.”