Equipment Remarketing Service: How Global Disruptions Affect Tractor-Trailer Manufacturing, Lending, and Buy-Back
The world of the supply chain has been affected by its fair share of global disruptions — economic instability, natural disasters, and trade disputes, to name a few. Those significant impacts have certainly changed the equipment remarketing service as well as tractor-trailer manufacturing, lending, and buy-back industries. The disruptions have influenced the demand for tractor-trailers, the availability of financing for manufacturers and buyers, and the resale value of used trailers.
When you consider that trucks move about 72% of the nation's freight by weight, according to the American Trucking Associations, it’s easy to see the significance of that aspect of the industry. Add in that more than 4 million of the 38 million trucks registered and used for business purposes were Class 8 trucks (including tractors and straight trucks), and you can gain an even greater grasp of what the tractor-trailer segment means to the supply chain. This blog will examine the global impacts closely to help manufacturers, lenders, and buyers understand what the future may hold for the tractor-trailer industry.
Impact on tractor-trailer manufacturing
A triad of disruptions or shifts in direction has hit tractor-trailer manufacturing. Let’s take a look at what manufacturers have had to overcome.
As the economy goes through difficult times, with some predicting a recession in 2023, the purse strings get pulled in and there is less money to spend. If a business is going through good times, thoughts turn to buying a newer version that will work more efficiently or purchasing an additional tractor-trailer to increase the fleet. When economic times are tougher, maybe those new purchases are put on hold until they fall into the necessity category. Higher interest rates that appear to be going higher also have to be figured in the cost, often dissuading owner-operators or companies from making big, new purchases. For manufacturers, that means fewer sales and less money in their pockets.
Supply chain disruptions
The pandemic initially caused a problem because plants had to close for a while to cut down on the spread of COVID-19. Then, executives had to figure out a plan to keep workers safe when they returned. Once they did return, there was another problem for tractor-trailer manufacturers — it was often hard to get parts to complete their vehicles. But the most critical shortage concerns semiconductor chips. Each tractor-trailer uses quite a few semiconductor chips; they control everything from power windows to airbags. Also, resin is another product used to make tractor-trailers that has been hard to track down. So that has left the manufacturers scrambling to complete orders they already had.
Many experts expect the effects of the shortage of semiconductor chips and other parts to continue into 2023. This will undoubtedly affect the prices of tractor-trailers now and in the future. The costs of purchasing a tractor-trailer will likely remain high, meaning leasing might be an ideal option. Compared to buying a vehicle right now, leasing usually offers lower monthly payments and might offer lower prices overall. If a tractor-trailer is needed quickly, it might also be the way to go because manufacturers have had to delay delivery dates by weeks and even months because of the shortages.
Changes in regulations and tariffs
For tractor-trailer manufacturers, the regulations get tougher and the tariffs get higher. Emission standards become more stringent year by year. That means manufacturers have to make adjustments quite often to satisfy those standards, which in turn means more money is spent on the new technological devices needed in the tractor-trailers. The same holds true for changes in safety rules. New devices are needed to keep up with the safety changes. For instance, speed limiters to keep a truck’s speed down to 65 mph and automatic emergency braking have not gone into effect yet, but are likely to appear on the horizon. Another concern for manufacturers is the tariffs that drive up the costs of raw materials, such as steel and aluminum.
Impact on tractor-trailer lending
As with tractor-trailer manufacturing, the lending end of that industry has also taken a hit from all of the disruptions over the last few years. Here are the key concerns that have slowed the tractor-trailer lending business recently:
Difficulty obtaining finance
The economic downturn has brought its hammer down on lending as well. With most semi trucks ranging somewhere between $100,000 and $250,000, trucking companies and owner-operators must choose some form of lending to cover the purchase. The economy hits trucking companies and owner-operators in their bottom line but also adds another blow in that it hurts a company’s chances of getting finance because it is not showing the sizable profit a lending firm wants to see.
Lender uneasiness over increased risk
When the market conditions are volatile and there is talk of a recession, lenders can often be concerned about an increased risk that the money they lend out will be much more difficult to collect if the economic times turn worse. They could fear the possibility the company they lent money to will go under or be unable to repay the business loan. That means when investing in a company, a lender might be a lot more stringent on who it gives money to because of the possible rocky future and, therefore, not lend their money to certain operators that they see as a risk.
Interest rate changes
As with everything else financial, the state of the economy has altered interest rates. Anyone who has purchased a large item in the last two years knows how the interest rates have clearly gone up and affected how much you will be paying for something like a car, house, or boat. The same holds true for tractor-trailers. Interest rates depend not only on the lender but also on other factors. Your credit score, your financial history, the length of the loan, your business history, and the equipment you are purchasing will all be figured in. The average interest rate ranges between 5% and 6%, but it can go much higher if there are concerns about the borrower.
Impact on tractor-trailer buy-back
The bumpy past three years have also greatly impacted used tractor-trailers and the state of their resales. Let’s examine some of the factors that have led to the current shape of used tractor-trailer sales.w
Decreased resale value
In some ways, the current state of sales of used tractor-trailers is much like that of new ones. With an economic downturn, fewer companies or owner-operators purchase big items, even the used versions, because of budget concerns. The average cost of a used semi-truck is $100,000, but some can be found for under $40,000, depending on the year of the model and the number of miles traveled. Experts are saying that used truck prices will fall in 2023. One of the expectations is that new tractor-trailer manufacturers will overcome the supply chain shortages and be able to put more new versions out on the market this year. This trend could help fleet owners who want to expand in the coming years with the ability to add in both new and used tractor-trailers.
Changes in demand for certain types of vehicles
Stay-at-home orders and self-quarantining during the pandemic meant consumers began to turn more to e-commerce, not for just optional goods and services but also essentials, such as groceries, big appliances, and personal care items. That shift also caused a change in last-mile deliveries. The need for more trucks to make last-mile deliveries to places that were not easy for big trucks to deliver to meant there became a need for other types of trucks to complete the tasks. That demand, which in some form is here to stay, has caused an increase in smaller vehicles and reduced the interest in used tractor-trailers.
Difficulty finding buyers
Despite the attractive appeal of used tractor-trailers during a time when new trucks are going for at least six figures and quite often much more for high-end semi-trucks, finding buyers for used tractor-trailers has become difficult. Financing challenges and a decrease in demand have taken bites out of the used tractor-trailer market. Those two have combined with the usual concerns that prospective used track-trailer have to mull over, such as dependability and the return for their dollar. When the money is tighter in more economically challenging times, there is usually a greater emphasis on getting a product that will last and be worth the outlay.
Finloc Can Help You Secure That Tractor-Trailer You Need
Without tractor-trailers, the supply chain industry would be in serious trouble. They literally and figuratively keep the system moving. Like all other sections of the business, they have been affected by the economy, the pandemic, and many other disruptions. Tractor-trailer manufacturing, financing, and buy-back have all been altered by those many changes. Now more than ever, buying a tractor-trailer needs to be well thought out. The folks at Finloc can help guide you through the whole process. Finloc has been assisting companies in securing the affordable financing they need to purchase new equipment and grow their businesses since 1994. With an extensive range of flexible financing options, Finloc will help you find a solution that meets your budget and equipment needs. To schedule a call, visit our website today.