By now you’re well aware of President Obama’s announcement that he will direct the EPA and DOT to set the next (post-2018) round of medium and heavy truck fuel economy and emissions standards. The first round of standards was finalized in September of 2011, and trucks meeting those standards are just now going into production.

Truck and engine OEM’s stated that the initial 2014 economy and emissions levels are relatively easy to meet with minor tweaks to current engine technologies. As the mandate progresses towards 2018 with increased efficiency requirements, additional technology involving the truck itself and probably the trailer will be required. 

The price of a new truck has increased dramatically with each recent emissions mandate (see the exhaustive ATD study of these costs for an idea of how much), and the upcoming enhancements will be no exception. In fact, it is likely that costs will increase to an even greater degree due to the need to develop new body and chassis technologies.

Regular readers of this blog and our monthly Guidelines report, viewers of our monthly videos, and/or subscribers to our used truck values know that used Class 8 pricing is currently at historically-high levels. A major reason for this market dynamic is the high price of new trucks. As the ATD report states, the actual cumulative effect of the 2004-2010 emissions mandates on the price of a new truck was over $20,000. In other words, a new truck sold in 2012 cost more than $20,000 more than it did before the requirements were in place (in real dollars). And pricing has increased further since the report was published. 

These price increases have pushed many buyers to late-model, low-mileage used trucks as a substitute for new. At roughly $54,000, the average six-year-old sleeper tractor with mileage in the low-500,000’s is about one-third the MSRP of a new truck. Granted, most buyers pay substantially less than MSRP. But even at half the price of new, the difference is compelling.

Trepidation about the reliability of new engine technologies is sometimes mentioned as a factor behind high prices of selected model years. The early EGR trucks certainly had major issues, as did succeeding generations of pre-SCR engines. However, as you can see from the graph below, sales data shows that the supply/demand relationship for low-mileage trucks trumps reliability concerns. The demand for low-mileage iron is simply more important. A related factor is that trucks with mileage low enough to make them substitutes for new are mostly equipped with newer, more reliable generations of emissions-compliant engines.

Of course, the high price of new trucks is not the only factor impacting used truck pricing. We regularly cover all relevant factors in our market updates. In the long term, though, inevitable new truck price increases should continue to support used truck demand.