How does a truck gain between $7,450 and $12,150 in value during a 15-month window?

It’s quite simple — the supply chain shockwaves from COVID-19. Those shockwaves have limited manufacturing of parts necessary to make new vehicles, tractors, and other implements. As a result, inflation is on the rise and the used equipment market is on a skyward run.

Here’s one real world example.

One farm family shared with us that they had obtained an $18,250 appraisal for a 2011 GMC 2500 Sierra HD truck on February 3, 2020. Following that appraisal to satisfy an estate, the family continued to use the truck for the 2020 cropping season.

Knowing that the used equipment market had seen a major uptick, that family obtained a new appraisal on May 6, 2021. The report indicated a wholesale value of $25,700 and a retail value of $30,400. That’s a gain of $7,450 to $12,150, depending on the low and high value in the range.

Being it was a 10-year-old farm truck with roughly 50,000 miles, there were a few dings in the truck body. The professional appraising the truck advised the family, “Just sell it as is.”

The farm family decided to sell. They removed the personal property from the truck and headed out to dealerships with the truck looking as if it had just pulled a load of hay back to the farm.

The family made exactly two stops to truck dealerships and asked for a price of $26,500 for the truck. The first dealership said, “I’ll give you $25,000.”

The farm family said, “It’s worth more. We have the title in hand and two key fobs.” They left the lot in less than 10 minutes.

The conversation at the second dealership was shorter than the one at the first dealership. “We’re asking $26,500,” said the farm family.

The dealer pointed to three snowplow blades and said, “I need to plow snow this winter and I haven’t received a new truck in four months. To whom do I write the check?”

It sold for $26,500 . . . a 45% gain in just 15 months.

Matches market estimates

Both used vehicle and home sales are hot.

“The average price of a used car was $18,453 in June, up more than 34% from the same time last year, according to Manheim Inc.” That was a direct line from Orla McCaffrey’s article, “Hot used-car market boosts auto lenders and borrowers” in the July 26, 2021, The Wall Street Journal.

The farm family in this article did slightly better at 45%.

The heavy truck market is even hotter than used cars. That’s due to a shortage of semiconductor chips. Ford slowed or idled its eight plants in July because it cannot complete the manufacturing process. The problem could persist well into August and beyond. Ford has thousands of trucks outside its manufacturing facilities that just need semiconductor chips.

With items such as semiconductors, lumber, and metal being in short supply, no one should expect the truck, tractor, field implement, or house market to cool any time soon. With money chasing these goods, inflation has settled into the economy. The shockwaves from the COVID-19 pandemic will continue to reverberate.

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(c) Hoard's Dairyman Intel 2021
July 29, 2021
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