Using an asset replacement plan for long-term success
The pandemic has had a continued negative effect on values across the board. While all vehicle classes have been affected, the light-duty segment has not seen the big pricing swings of the Class 8 market.
We all know that prior to the COVID-19 pandemic, used truck values were very low. The pandemic has had a continued negative effect on values across the board. While all vehicle classes have been affected, the light-duty segment has not seen the big pricing swings of the Class 8 market. The explosion of home delivery has led to recent gains in the light-duty segment and the type of equipment serving that market has seen an uptick in demand and pricing.
We saw a dichotomy in trucking during the pandemic. On the one hand, transportation was an essential industry during the entire forced shut down of businesses. Transportation and truck drivers were hailed as heroes as they kept food, medical and hospital supplies, disinfectants, gasoline, etc. available. However, at the same time there were other segments of transportation that were shut down as a great deal of other types of freight was very limited.
One contributor to the weak used truck market was a lot of dealers were partially or completely shut down for variable time periods. Some of the largest used truck auctions in the country had all their physical auction locations completely shut down, some for as long as two months. Basically, access to available used trucks was very limited during much of the pandemic.
As the economy starts to reopen, we are seeing a surge in wholesale interest and activity as many dealers have sold some of their stagnant inventory after not buying for two or three months. We will have to see how long this trend lasts.
There have been some minor upward blips on the retail side, but for the most part that has been slower to recover as companies are still sorting out how to re-engage in commerce. As we go back to work and begin spending again, we hope to see an uptick in used truck sales. If that happens, this will start to eliminate some to the current inventories and used truck pricing will start to recover.
So, what’s the best course of action for a fleet when it comes to asset replacement given the current and future condition of the used truck market? I am going to use a phrase I use often: fleets need a measured approach to asset acquisition and disposal. Do not make wholesale changes in the way you do business and in your normal asset replacement cycle in response to temporary market conditions. If you start doing that, you will find yourself always chasing the market, which is never a good thing.
Long-term business plans with the proper amount of flexibility will always rule the day. All too often we overreact to the here and now and begin this ongoing cycle of chasing the market. By developing asset management plans that can contend with various market conditions you will be able to smooth out the cycle.
One way to build in flexibility is to lease assets rather than to purchase them outright. If properly structured, leasing is a great way to have more control of asset replacement and to insulate yourself from the vagaries of the used truck market.
Given the realities of the used truck market, a steady approach to asset acquisition and replacement is your best course of action. If you liken the truck market to the stock market, which I think is an apt comparison, remember there are more broke day traders than there are successful ones.
A well-defined asset replacement plan will make sure you are a success long term.
As the leader for Corcentric’s capital equipment solutions, fleet procurement, supply management and remarketing teams, Pat Gaskins brings in over 30 years of financial experience to develop data driven solutions to complex transportation transactions, driving efficiencies and reducing expenses for Corcentric’s customers.