Is the South African used truck market in crisis?
Is the South African used truck market in crisis?
Rumours have circulated within South Africa’s commercial vehicle industry for months, suggesting a massive oversupply of used trucks. But is this really the case? CHARLEEN CLARKE asked industry insiders to shed light on whether the market is truly in a crisis – and what is driving current trends.
“It’s a bloodbath out there. I cannot remember when last we had this number of used trucks in stock.” That was the feedback from one senior industry executive, who spoke to FOCUS on the condition of anonymity.
Fortunately, not all original equipment manufacturers (OEMs) are facing the same plight. For Isuzu and Ever Star Industries (ESI), for instance, it’s pretty much business as usual. “In Isuzu’s space of the market – mainly medium and heavy commercial vehicles – we don’t necessarily have a strong oversupply of used trucks. For Isuzu, the story is different, we cannot keep up with demand as dealers are already selling into our future pipeline of supply,” Mo Ebrahim, marketing communications specialist at Isuzu, tells FOCUS.
“We have heard that there is a lot of used truck tractor stock at other dealerships in South Africa. However, ESI and our dealer network have a handful of used trucks. There are very few used Powerstar trucks available in the South African market at any one time due to their reliability and longevity,” concurs Mike Hawkins, ESI senior manager: commercial. “If any do become available, they are usually sold quickly. This certainly assists us in our new vehicle sales.”
They’re the lucky ones; the majority of OEMs are in a completely different situation. “There is an oversupply of used trucks in the market,” confirms Onica Ndlovu, director of commercial offer & used trucks at Volvo Trucks. “There was increased demand for used trucks post-Covid, as some OEMs struggled to keep up with new truck orders due to global shortages, brought on by factors such as the semiconductor crisis,” she explains. “This drove many financially pressured businesses in South Africa to opt for second-hand trucks rather than new ones. The supply of new trucks has normalised back to pre-pandemic levels, allowing consistent flow to customers, so there is no need for an emergency purchase of a second-hand vehicle,” she adds.
Jan Aichinger, managing director of MAN Automotive South Africa, agrees. “The used vehicle market is linked to the new vehicle market. Last year, there were around 18,000 extra-heavy commercial vehicle (EHCV) sales in South Africa, and we knew that this was not sustainable,” he points out.
Thabo Moloi, general manager for used trucks & buses at Daimler Truck Southern Africa (DTSA), corroborates this view, noting: “TruckStore has noticed higher stock levels this year compared to last, largely due to record new truck sales in 2023. Many of these trucks have now cycled back into the used market.”
The massive oversupply of used trucks is confirmed by marketing activities. “I believe that the evidence of the oversupply is in the amount of advertising of special offers on used vehicles that we are seeing in the marketplace on a regular basis,” says Mark Gavin, sales director at Babcock International Group.
How economic conditions shape demand
South Africa’s economic climate has heavily impacted the used truck market, especially in the logistics and transportation sectors. “The tough economic conditions hamper the cashflow of logistics operators, some of whom are not able to meet deposit requirements on a used vehicle purchase,” explains Volvo’s Ndlovu. “Others are disposing of their vehicles sooner than expected, thus contributing to the increase of used vehicles in the market.”
DTSA’s Moloi concurs: “Whenever the economy experiences pressure, this pressure translates to our customers, and we see the result in our business.”
Dire impact of declining coal exports
One of the reasons for the surprisingly high EHCV market last year was the buoyant side tipper sector. “This was mainly due to the exports for increased coal demand from Europe and China. This resulted in many operators purchasing many more vehicles than they normally would,” explains Steyn van Zyl, head of used vehicles at Scania South Africa.
The impact on the market was staggering. “Side tippers accounted for 38% of the EHCV market last year – so that market was huge,” relates MAN’s Aichinger. But then things changed.
“The coal demand decreased, as Europe and China are working towards more sustainable power solutions and a trading restriction between China and Australia has been lifted, giving China more purchasing power,” reveals Van Zyl. “With the lower coal demand, there are fewer trucks required for transport. Many transporters decreased their fleet sizes and started to trade in and sell more vehicles. Transporters opted out of operating leases earlier, or did not renew or extend their lease contracts. This resulted in an increase in used stock across the country and a lower demand for trucks.”
Ndlovu also says that the fluctuations in coal demand have had ripple effects. “Many logistics companies expanded their fleets during the coal boom,” she notes. “However, as coal prices stabilised, some of these operators have struggled to sustain demand and cashflow, resulting in the early disposal of vehicles, which only adds to the used stockpile.”
China enters the fray
While the used truck market was being pummelled by the unwanted tipper trucks, another phenomenon kicked the sector while it was down: the Chinese contingent.
As Aichinger explains, “For the first time, a Chinese manufacturer has claimed the top position in our market. At their price point, they’re increasingly appealing to customers who previously bought used trucks. For a marginal premium, those customers can now acquire a new vehicle.”
This trend is reshaping buyer preferences; the availability of affordable new Chinese trucks has left traditional used truck dealers rethinking their strategies. Chinese brands like FAW, Sinotruk, and Powerstar are growing their new vehicle sales while offering stiff competition for used dealers.
Van Zyl further highlights the impact, saying, “A brand-new Chinese OEM truck with warranties is priced the same as a used truck. This also gives customers more buying power,” while Babcock’s Gavin adds: “The introduction of additional Chinese brands means that an operator can purchase a new vehicle at the same price as a three-year old European vehicle with fairly low mileage.”
ESI’s Hawkins confirms the situation: “A new Powerstar tractor can often be purchased for less than a second-hand European product. We do not get a great demand for used vehicles and often, when we do, we may sell the client a new Powerstar – because it has a similar price to what they were prepared to spend on a used truck.”
Of course, the value proposition offered by Chinese trucks isn’t just impacting the used vehicle market. “My biggest concern in losing a customer to a Chinese manufacturer is the fact that we’re not just losing a deal, we’re losing a customer,” stresses Aichinger.
“Take a new truck in the premium segment, which costs R2 million. After three years, it can be traded in for R1.4 million. The customer only needs to spend R600,000 to buy a new premium truck,” he continues. “Contrast this with a customer who buys a new low-cost truck for R1.4 million. After three years, it may be worth R200,000. They are never ever going to be able to afford a premium truck worth R2 million again, because they must chip in R1.8 million. This is why, if you lose a customer to the low-cost segment, it’s very difficult to get that customer back into the premium segment.”
Regional competition: a surprising player
For some operators, however, price is top of mind – and this is being seen in the used truck export market. Interestingly, one of the biggest competitors in this market isn’t another brand, but a country: the United Kingdom. “The UK is selling large volumes of used trucks to our neighbouring countries like Botswana, Namibia, and Mozambique,” reveals Aichinger. “They offer these trucks at prices that are hard to beat.” These imported trucks – mainly 6x2s – are not always a perfect match for regional needs, where 6×4 trucks are often preferred. But the price is right…
Stock levels and economic pressure
Back in South Africa, with stock levels high, dealers are being forced to think creatively to stimulate demand. Ndlovu shares that Volvo is adopting “out-of-the-box” approaches to address the issue. Similarly, TruckStore (the used truck division of DTSA) has launched competitive sales campaigns, offering options such as a Mercedes-Benz Actros 2645 with a 10% deposit on a 48-month term, with a 60-day payment holiday until the end of December 2024.
Scania, meanwhile, has intensified its collaboration with independent traders. “Evidence exists that most of their sales demand comes from the African market. OEMs supported by their brand are able to add extra products such as driveline warranties, service contracts, and simplified finance options. Independent truck traders also have options to take on a floorplan with respective asset finance companies to support their stock holdings,” explains Van Zyl.
Aichinger says that MAN held a successful TopUsed day, with its used trucks generating considerable interest. “We’re expanding our TopUsed offerings to more dealerships, giving customers greater access to our inventory. We’re also selling used trucks with bodies,” he adds.
Financing used trucks: the current landscape
Nevertheless, within South Africa’s challenging economic climate it can be difficult to finance those used trucks. “It is harder than usual, mostly because of cashflow constraints that many are experiencing. In addition to this, we also see finance houses placing a higher demand in terms of qualifying criteria and required deposits,” notes Ndlovu.
Thankfully, this isn’t always the case. “In some cases, it’s been easier to get used vehicle finance than applying for new vehicle finance,” reveals Gavin, and this supported by Ebrahim: “The lower cost of a used truck can make it easier to obtain finance. This does depend on the customer risk profile – and some high-risk customers (especially small to medium companies) don’t always get funding from traditional banks.”
Van Zyl says many truck operators with a used vehicle fleet and with steady financial statements should not have problems obtaining finance. “The main challenges that Scania has seen are that customers are struggling to put together funds for deposits, or sometimes they are non-compliant with SARS so finance can’t be concluded. In other cases, with smaller fleets, the operators tend to transact COD,” he reports.
Moloi says he is seeing a positive trend when it comes to financing. “The majority of finance applications in the used market are from individual applicants rather than business applicants. The portion of finance approvals compared to rejections has remained relatively stable over the past couple of years. More recently, DTSA has observed a slight reduction in the number of declined finance applications, which is a positive indicator,” he reveals.
In order to assist used truck buyers, some brands – like MAN – are introducing tailored financing structures to make ownership more accessible. “In conjunction with MAN Financial Services, we offer structured finance options for used trucks, which includes a lower initial rate for the first six months,” says Aichinger. “In the agricultural sector, we’ve also developed seasonal finance solutions, allowing customers to make payments that align with their income cycles.”
Long-term implications of high stock levels
If stock levels remain elevated, market corrections are likely. “The oversupply of used trucks in the market has increased pressure on pricing – meaning that the expectation of the selling customer (of a higher selling price) is further away from the expectation of the buying customer for a lower price,” says Ndlovu, while Moloi believes that continued pressure on pricing is inevitable.
This has turned the market into a paradise for purchasers. “The oversupply of used trucks has created a buyers’ market. Used truck traders have had to bring their prices down to remain competitive in a market where there is too much stock and increasing Chinese OEM competition,” emphasises Van Zyl. “Stock turnover ratios have become higher and many truck traders have been forced into positions to convert their stock to cash at a lower price – in some cases, lower than the cost price.”
Moloi echoes this, saying: “This year, the used truck market is highly competitive, also in terms of pricing. According to the law of supply and demand, when supply increases, prices tend to be affected. We are observing this trend at the moment.”
Gavin highlights a different approach, though: “Despite the oversupply, we’ve maintained our pricing structure, preserving the value in our brand.” Still, this strategy doesn’t suit every dealer, and most have resorted to lowering prices to keep stock moving.
However, lowering prices comes with risks. “We are already seeing that prices are coming down in the market and many truck traders are already mostly exporting. In times like these, from a corporate policy perspective, many OEMs will prefer to move stock at a lower price to improve their current ratios, but will also be keeping an eye on their trade values. A lot of new sales bank on a steady return value on their trucks. Decreasing your price too much in the short term will have long-term implications, where you end up in a position of always having to pay more for a trade-in compared to what the market will pay for your brand. This will result in material losses when you need to sell the vehicle,” warns Van Zyl.
Aichinger cautions buyers against simply opting for the cheapest used truck. “Buying cheap isn’t always cost-effective in the long run,” he advises. “When purchasing a used truck, you need to consider factors like residual value, quality, and frequency of breakdowns. The most expensive vehicle can sometimes end up being the most economical.”
A crisis?
Given all these factors, is the used truck market facing a crisis? While it is certainly facing significant challenges – from oversupply to competition from new Chinese brands – many view the situation as an opportunity for strategic adaptation, rather than a cause for alarm.
As Moloi puts it: “Keep in mind that the truck market, both new and used, tends to be cyclical in nature. A buyer’s market today can very quickly develop into a seller’s market tomorrow. Those who operate in the trucking industry for any considerable period know not to have knee-jerk reactions based on the prevailing trend.”
“This isn’t the first time we’ve faced market pressures. The truck industry has shown remarkable resilience in the past. While today may be a buyer’s market, conditions can change rapidly, and the industry will undoubtedly adapt,” agrees Aichinger.
So, the used truck industry is undoubtedly facing tough times, but as Ndlovu sums up: “We are in a cyclical business with many good and bad times. However, over time, the market will correct itself and we will all have adjusted to the new normal.”
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