Bank exits squeeze truck financing for mid-size fleets

Three and a half years of freight recession did two things to the truck financing market at once. It shredded the credit profiles of the carriers who most needed to borrow. It also pushed a large share of the lenders who would have lent to them out of the sector. Both are now rationing the equipment replacement cycle the industry has spent two years waiting on.

Kirk Mann stayed in. As executive vice president and general manager of the transportation vendor solutions business at Mitsubishi HC Capital America, he financed trucks through the entire downturn and watched a great many of them come back.

"There are a lot of lenders, banks that left, and so we've had the benefit of being one of the lenders actually lending money in this space," Mann said in an interview with FreightWaves. What competition remains is mostly OEM captive finance arms, a couple of large independents and a few bank-led groups, he said.

The carriers that did not survive were overwhelmingly the newest. On average, 85% of motor carriers with fewer than two years of operating experience and their own operating authority failed over a three-year stretch of the downturn, Mann said.

The asset bubble behind the failure rate

Back in January 2023, Mann sat in Mitsubishi HC Capital's Chicago offices with Wayne Pass, the company's chief credit officer for vendor solutions, since retired. He asked what a Freightliner Cascadia 13-speed with a tall sleeper and fewer than 500,000 miles was worth. Both men wrote down $45,000. Mann then asked what the company was financing those trucks at. About $110,000.

"I remember we were in a bubble. It was an asset bubble of enormous proportions," Mann said.

A typical 4-year-old sleeper tractor sold at auction in a range of roughly $30,000 to $50,000 across the 11 years between the Great Recession and the COVID-19 pandemic, according to J.D. Power's Commercial Truck Guidelines . That same truck peaked near $118,000 in early 2022, a 136% jump over the highest pre-COVID peak in the same dataset. Class 8 average retail prices have since settled at $60,986 as of September, according to ACT Research's State of the Industry: U.S. Classes 3-8 Used Trucks report .

Mitsubishi HC Capital lent into that bubble knowing what it was.

"We made the decision to stay in that market even though we knew there was a tremendous asset bubble, because we wanted people to know we were there," Mann said. "And if I could do it over again, I'm not sure I'd do it exactly like that. But we'd probably mitigate our risk exposure a little bit differently."