Used-truck financing remains a concern for commercial vehicle dealers as tighter credit and higher prices limit affordability and sale of ancillary products.
July class 8 U.S. used-truck, same-store dealer sales totaled 4,717 units, up 17% year over year, according to ACT Research’s preliminary data presented at the ACT Research Seminar in Columbus, Ind., on Aug. 22.
While used Class 8 retail sales rose 32% year over year in July, according to ACT Research, lending remains a challenge, Ron Long, president & chief executive at Dallas-based Premier Truck Group, said during the seminar.
“There’s obviously lending going on because [of] the volume and the consistent sales of the industry, and most of those aren’t for cash,” he said. “There is lending, but the lending environment’s gotten much more difficult over the down part of this cycle.”
Finance companies continue to see losses on a per-unit basis for repossessions due to those peak price used trucks, Long said. While dealers and lenders can still make money, the current freight environment makes it difficult for overpriced units.
“There was a time when you could buy a [used] truck for the price of new and you can run it and make money, and that situation has changed,” he said. “You can get in today because of the price of the trucks, but if you’re making a payment [on a] $150,000 used truck at current freight rates, it doesn’t work.”
For example, current dry van spot rates sit at $2.01 per mile, while owner-operator break-even rates sit at $1.80 per mile, Dean Croke, principal analyst at Beaverton, Ore.-based DAT Freight & Analytics, said during the seminar.
Historical comparisons
Down payments started affecting the truck market at the height of the pandemic, and while prices and down payments continue to fall, deals made during the pandemic still pressure buyers, Long said.
“Most lenders were bringing that up, understanding that was the issue, but even a 20% or 30% down payment, when a truck is three times its normal value, as it comes down, it didn’t keep up,” he said. “We see in the good times a 10% down payment may be much more normal.”
Part of the reason for a slow return to the historical lending environment remains the exit or pause of lenders in the industry, Long said.
“What it comes down to is a lot of exits from the lending environment,” he said. “People said, ‘I’m tapping out. We’re going to take our money, go elsewhere,’ Then they’ll likely come back, or others will take their place when it’s a better situation, and so lending is going on, but it’s tighter.”
Ancillary product concerns
In a tighter lending environment, one key negative for used-truck buyers is that it becomes difficult to finance the warranty and other ancillary products commonly packaged in the sale, Long said.
“A small operator [putting] 30% down could be the vast portion of their nest egg, so the ability to handle any sort of catastrophic repair events is difficult,” he said. “A lot of finance companies have really trimmed back what they’ll loan on a vehicle, and so it’s cutting out the ability to package warranties, road hazard or breakdown services.”
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