By Bill Bishop, SVP of Sales and Marketing for FLD Remarketing
Welcome to FLD’s quarterly White Metal Market Report for Q2 2023.
As we have for the better part of the last decade, the team at FLD has been hard at work during this first quarter of 2023 getting a beat on the pulse of the used medium duty wholesale market to share with our customers, partners, and friends in the fleet space. And as it has for just about every quarter in the past 18-24 months, very little has changed with respect to what we’re seeing. And while the market isn’t exactly trading sideways, there is so little variance in the important indicators we watch that it might as well be.
As we head into the teeth of 2023, here are some of the important trends we’re seeing – and a few predictions on what we expect as the year progresses.
Inventory, Prices Creeping Up — Questions Around Demand Remain
After an essentially stagnant – and challenging – last few years, the end of Q1 2023 finds the industry with dealer inventories and pricing moving up slightly. Not as fast as we would need to see to consider this a trend, but headed in a northerly direction, nonetheless. And while demand remains fairly high for new units, the big question is whether or not there is enough pent-up demand for used vehicles as more and more units slowly find their way onto the market. At this point, that’s anybody’s guess given unresolved questions about the economy and continuing weak freight demand, so we will be keeping our eyes focused on this ever-changing situation.
Taking a look at alternate channels, we do see some encouraging trends, especially in the auction channel where February’s numbers are uncharacteristically high compared to January. In a positive sign, the wholesale channel also experienced a small increase, meaning the total market was almost 30% higher in January compared to a year ago, and slightly higher in February 2023 compared to February 2022.
With new inventory still hard to come by, and many fleets hanging on to their used vehicles longer than at perhaps any time in the industry’s history, a second concern has to be whether or not there will even be enough used inventory available for purchase, especially if demand continues to outpace supply (and we have every reason to believe it will.) This is a situation that will – frankly – continue as ICE vehicle production has been sacrificed in favor of EV development. And while it’s clear the big three OEMs are “all in” when it comes to electrification, continued concerns around lack of range and charging infrastructure make most commercial fleet managers hesitant to show the same commitment.
Light, Medium Duty Remain Strong
Light duty values built as expected in Q1 2023, something we expect to continue as the year progresses. In an occurrence we don’t see often, commercial fleet lagged consumer for most of the quarter (a situation that’s likely to continue as the year wears on.) And while work vans and pickups were soft for most of the quarter, demand for smaller to mid-sized cars and SUVs continues unabated, and likely will stay that was for as long as inventory remains tight. And while production of new vehicles in this class remains stable, the fact production is still significantly lower than in years past means there likely won’t be enough of these smaller vehicles to meet demand.
In an encouraging sign that production is headed in the right direction, new medium duty trucks have begun showing up on dealer lots, one of many continued glimmers in the slow march away from the pandemic. How much this actually helps fleet regain its footing remains to be seen as commercial orders continue to stay strong and new inventory is either spoken for or snapped up quickly. The back log in this class may be one of the largest as specs tend to be solution specific and fulfilling them usually takes time.
Used medium duty values have softened – and likely will continue to – as new inventory has started moving into the marketplace. As has been usual since the pandemic, freight continues to be the number one driver of demand, and the fact it has remained consistently soft is having an oversized influence that will likely continue to put downward pressure on the market.
Heavy Duty, Big Trucks a Mixed Bag
Heavy trucks remain segmented into two distinctly different markets, both being driven – like the medium duty market – by freight demand.
On one hand, the “day cab” market clearly remains the strongest of the two as orders for long freight continues to lag. This has diminished both demand – and values – for the sleeper market, a phenomenon that started at the end of Q4 2022 – and accelerated throughout Q1 2023. The result has been a steady decline in both demand – and values – for sleeper units, something we expect to continue over the rest of 2023 (and worsen if long freight orders continue to decline and CDL drivers remain hard to find.)
Pricing, Mileage, Age
As we often do, examining one class of the used wholesale market can help project where the rest of the market might be headed. In this case, our review of the class 8 market shows retail prices slipped in Q1 2023, exceeding normal depreciation. Meanwhile the average mileage for these trucks was roughly 4% higher in Q1 2023 than 2022, while the average age declined slightly – a mixed bag of numbers that tells us we’re likely still a few years away from returning to predictable patterns. Or that fleet’s new normal may make it harder to predict what exactly those patterns will look like over the coming years.
Economic Indicators Harder to Read
For years, our team here at FLD has relied on a number of important economic indicators – and traditional bellwethers – to craft our quarterly White Metal Market Report. And for most of the time we’ve been doing that, these indicators – the US Unemployment rate, the price of crude oil, the number of US housing starts, and the unemployment rate – have given us the reliable data we’ve needed to make sometimes bold predictions.
Since the onset of the pandemic, those traditional indicators have gone completely haywire, making it hard at times to not only predict where things are headed, but wondering if we’ll ever experience normal patterns again. And while these numbers have started to moderate over the last three quarters, it’s truly anyone’s guess if they’ll stay that way for long.
As it stands, the US dollar remains strong, limiting exports of used vehicles in all classes. The unemployment rate has begun to tick back towards historically low rates, further exacerbating driver shortages. And while the price of crude continues to stabilize, diesel costs remain high, further pressuring the used wholesale market.
Crystal Ball Still Murky
The picture for the rest of 2023, frankly, remains murky. That said, we do see a couple of developing trends we’ll be keeping an eye on, as any one of them could continue to keep downward pressure on the space.
To begin with, the market is starting to get a little soft, as questions around inventory – both new and old – continue in the wake of the pandemic. A situation exacerbated by OEM’s focus on ramping up production of EVs.
Access to cash is getting tighter, and likely will get even more so, especially at the local level, as fallout from the Silicon Valley Bank collapse reverberates from Wall Street to Main Street. This could have an especially chilling effect on the white metal market.
And finally – as we pointed out in our 2022 wrap-up and 2023 look ahead, a recession at some point this year remains highly likely. The severity of which has the capability to have the biggest effect of all on our market. Thus, while the economy in 2023 has been less than stellar, the situation has remained troublesome rather than dire. In our opinion that’s a good thing, and something we’ll all pull for throughout the rest of the year, but for now the industry remains in limbo waiting to see what happens next.
Eyes Peeled, Mind Focused
As always, the FLD team is honored to give you our expert opinion on the state of the medium duty wholesale market. And confident that while the industry is still experiencing sometimes gut-wrenching twists and turns, a clearer picture of where fleet’s future is headed will start to emerge as the year progresses. Until then, our team will stay focused on bringing our readers the most important industry developments and predictions that we can. Thanks for reading!
Bill Bishop is SVP of Sales and Marketing for FLD Remarketing. With over 30 years of experience, he is a recognized expert on white metal and all things fleet. To ask him a question or to get a free 5-minute assessment of your company’s remarketing needs or fleet vehicles, email him at [email protected].
The White Metal Market Report is a trademark of FLD Remarketing. All rights reserved.
