By Bill Bishop, Senior Vice President, Sales and Marketing, FLD Remarketing
At the beginning of 2021 and 2022, I was privileged to write a year end/year ahead article for the folks at Fleet Management Weekly. It’s also something we do for our own customers, partners and associates by producing and distributing our free White Metal Market Report, a look at the medium duty wholesale market that we publish each and every quarter.
With fleet – like the rest of the world – still suffering from the leftover effect of the Covid pandemic, we predicted not a lot would change from 2021 to 2022. In fact, I went as far as to say that fleet in general – and the medium duty market in particular – would experience a ‘Groundhog Day’ effect, referencing the 1993 Bill Murray movie where a hapless TV weatherman is forced to live the same day over and over.
Looking back on the predictions I made – and measuring them against the reality of what actually occurred – I would offer that I wasn’t far off in identifying what would become some of the most important trends that would follow. And now, as we kick off another year, I’m ready to take a look back at 2022, and offer some thoughts on what I believe the fleet industry will experience in 2023.
2022, The Year of Moving Sideways
As 2022 got underway, my prediction that fleet would change little from the previous year was essentially correct, including:
-Vehicle inventory – both new and used – was virtually non existent
-Inflation, shortages and supply chain woes would continue unabated
At the same time, I also predicted that the wholesale used vehicle market would soften including:
-Base model pickups and van pricing and availability would go from flat to falling off
-Medium and heavy duty trucks would stay flat but strong year over year
And while it remained unclear how far used vehicle prices would fall by the end of 2022, that process would start in earnest in early Q2, a phenomenon that occurred almost to the day we predicted. As we also suggested, prices proceeded to fall throughout the year, something we expect to continue in Q1 2023.
In addition to a softening market, we also warned that while new vehicle order boards would open as usual in mid to late Q2, manufacturers would be hard pressed to meet demand for the 2023 model year. As predicted, auto makers shipped 8 million fewer vehicles in 2022 than anticipated, largely because of an inability to get the raw materials and products needed to maintain production.
Finally, perhaps the most prescient prediction we made was that easy access to inexpensive financing would dry up and that fleets should start stockpiling cash, something few pundits foresaw with the prime interest rate hovering at historic lows in Q1. Since then, rates have more than doubled and fleets have found themselves with dwindling options to quickly access funding, a nagging problem that isn’t going away soon as the Federal Reserve continues to signal continued increases to the interest rate.
2023: More of the Same with a Side of Hope
Heading into 2023 there is no question that the fleet industry continues to face many of the same hurdles it has since the pandemic began. That said, we are seeing small indications that the state of fleet in general – and the medium duty market specifically – may experience a more favorable trajectory in the coming year.
For starters, we see the continued proliferation of EVs and electrification across fleet as the offering becomes more sophisticated, charging becomes more available, and OEMs do all they can to increase range and decrease anxiety around it. This dramatic growth in all things electric is driving newfound excitement across a broad swath of the industry as everyone jockeys for their piece of the EV pie. Ford – who will deliver thousands of EVs to fleets in 2023 – has definitely moved out front in the domestic EV space, while GM and Stellantis lag. That may change as the year goes on, as GM has moved ahead in overall production and sales, and Stellantis is shuttering plants in early 2023 to further EV conversion.
As we start the new year, we also expect that OEM production will creep back to what likely will be the “new normal,” for at least the next few years. And while that means more new vehicles available in 2023 than there were in 2022, there’s little chance we’ll return to the kind of robust output we saw in 2018 and 2019 as OEMs convert production capacity to EVs from ICE vehicles. And while we firmly believe manufacturers will try their best to deliver a higher percentage of the new vehicles that fleets request, the reality is that order boards will fill quickly in 2023 (and likely 2024) but may not fully settle until 2025.
Used Vehicle Prices Likely to Drop Further
Looking ahead at the rest of the year, we believe pricing across the used vehicle market will continue to stabilize, a process that started in late 2022.
This includes the used pickup and van space, which has been fairly stable since Q2 2022. On an unfortunate note, the scarcity of these assets over the past three years – coupled with reduced production – has rendered the overall quality of the fleet product to be quite poor, something that won’t change as 2023 progresses. The price of these vehicles was down 18% in 2022, and we believe they could fall another 10% in 2023. Meanwhile, low mileage and later model units will command premium prices, yet another reality of our new normal.
Medium duty trucks, which dropped in value in early Q4 2022 have held their value and are likely to do so through the better part of 2023 despite some minor regional price variances, with units in the Northeast and West weaker than the South and Midwest.
Used class 8 trucks will be a mixed bag in 2023. Day cab prices are still flat to strong, depending on the model and spec, something we expect to also continue in 2023. Meanwhile, soft freight and lack of available drivers was likely the cause of a 30% reduction in the cost of sleeper truck pricing from 2021 to 22, and that market will continue to struggle in 2023.
In the used, light duty market, we expect values will begin dropping towards the end of Q1 or beginning of Q2. And while a moderate tax season will likely help vehicles hold value early in 2023, mileage and condition will drive pricing after April and throughout the rest of the year.
Tenuous Ground, Cautiously Optimistic
As we’ve seen over the past few years, the fortunes of fleet are often foretold by the same economic indicators that reflect our everyday life. For example, our team at FLD has always monitored bellwethers like the price of gas, the unemployment rate and the number of housing starts to compile a snapshot of what’s going on in fleet. So while we’re cautiously optimistic about what fleet – and more specifically the medium duty truck market – is experiencing, we know that even the slightest wobble in the world’s economy can have negative consequences for our industry. Given that, we still think there are several factors that could end up sacking what we otherwise hope will be a positive year for the fleet space. Chief among these would be a pronounced recession, or an overzealous Fed, but for now we don’t expect any meaningful move down, and it’s possible that by the end of the year we could actually experience some positive developments around vehicle availability and supply chain delays.
Regardless, as we always do, the team at FLD will be keeping its eyes peeled and its ears to the ground in an effort to keep our customers, partners and friends in fleet in the know and one step ahead of the competition!
About the Author
Bill Bishop is SVP of Sales and Marketing at FLD Remarketing, a 30-plus year fleet veteran, and a recognized expert of the white metal market. He can be reached at [email protected].