Equipment lenders are providing various leasing options while carefully determining residual values amid rising new truck prices and operational costs that are pressuring borrowers.
As of May 19, the average cost of a new heavy-duty sleeper truck reached almost $200,000, marking a 14.3% increase from $174,950 recorded on January 6, based on data from Equipment Finance News’ Average Truck Price Trends. The prices of new trucks rose by 3% year-over-year in the first quarter, according to IronAdvisor Insights.
Average Price of New Sleeper Truck
As truck prices continue to rise, the financing sector is facing challenges, making it harder for fleet operators to manage monthly payments. Kirk Mann, executive VP and head of transportation at Mitsubishi HC Capital America, remarked on this pressure.
“The climb in interest rates and the increasing costs of insurance are compounding this issue. Truck operators are under multiple financial strains, particularly from the escalating truck prices,” he noted.
Leasing Solutions to Alleviate Financial Stress
To counteract high interest rates and make selling viable for dealers, lenders are developing arrangements to alleviate some of the financial strain associated with rising truck costs, according to Mann. They are now providing terminal rental adjustment clause (TRAC) leases and fair market value (FMV) leases, which aim to reduce monthly payments.
A TRAC lease allows both the lessee and lessor to agree on a predetermined residual value, offering more flexibility, while an FMV lease lets the lessee make fixed monthly payments for a specified period and grants options to return, continue leasing, or buy the vehicle at market value at term’s end.
Cautiously Setting Residual Values Amid Technological Advancements
The continuous rise in new truck prices can be attributed to the integration of advanced safety and emissions technologies, as noted by Jennifer Sablowski, VP of equipment finance at Transport Enterprise Leasing. This technology generally adds $10,000 to $15,000 to a Class 8 truck’s cost.
There is uncertainty regarding the residual values of first-year models due to these unproven emissions components, leading to a recommendation for a conservative approach when assessing residuals for these initial models, according to Sablowski.
Mann also emphasized the importance of considering credit quality and fleet size when financing new high-tech trucks, ensuring customers can manage any potential technological issues effectively.
