NAFTA blowback fueling used truck boom south of border in Mexico

Ever wonder where the trucks that hauled your freight of the past decade have gone? Look no further than Mexico.

Thanks to liberalization of Mexico’s used truck rules, there has been a stunning increase in the number of six-to-10-year-old U.S.-manufactured trucks that are being sold at auction to Mexican fleets.

This year used truck purchases by the Mexican government, exports of used Class 8 heavy trucks to Mexico will hit 11,000—at least triple the number of such trucks exported to Mexico last year. That’s according to ACT Research, which closely tracks used heavy truck sales.

At this rate, Mexico is replacing Nigeria and Russia has the No. 1 destination for used U.S. truck sales worldwide.

This is because of a boom in Mexico manufacturing.  “Mexican fleets are saying, ‘We need trucks’ and the Mexican government has relented and allowed for newer trucks to be sold on the used truck market,” said Kenny Vieth, ACT president.

Vieth said the genesis of the increase goes back to the passage of the North American Free Trade Agreement (NAFTA) back in 1991 when Bill Clinton was president.

Under the original terms of NAFTA, the three major North American countries (U.S., Mexico and Canada) were supposed to enjoy a “seamless” crossborder trucking network. But it never happened that way.

Opposition by organized labor, safety groups and environmentalists blocked entry of any large scale “invasion” of Mexican fleets in this country. Although a handful of Mexican fleets have been approved for operation in this country by the Federal Motor Carrier Safety Administration (FMCSA), NAFTA has not resulted in a tidal wave of U.S. business for Mexican fleets.

In 2006, Congress balked at allowing Mexican fleets into widespread operation in this country. One of things Mexican government did in retribution to this protectionist element, it allowed for liberalization in the rules covering used truck purchases.

In the past, Mexican fleets were only allowed to buy trucks that were at least eight years old. A year or so ago, the Mexican government changed that so that six-year-old trucks were allowed for sale there.

“All of a sudden we saw an explosion of used U.S. trucks sold in Mexico starting a year ago,” Vieth said.

The U.S. Environmental Protection Agency changed emission rules for heavy trucks in 2004 and 2007. Now, 2004-compliant trucks are allowed in Mexico under Mexican laws.

That change has coincided with tougher environmental regulations in this country. Starting next year, fleets can no longer drive a truck in California without a diesel particulate filter. That means trucks built in 2007 or later will have to be retrofitted to meet the new standard.

“That is probably squeezing used truck prices and putting downward pressure on 2004-5, 6 model year trucks,” Vieth explained.

While this has been happening, there has been a rapid expansion of manufacturing plants in Mexico to serve customers in North America, Latin America and globally. “There had to be a hue and cry on the part of Mexican truckers to let them buy these trucks,” Vieth said.

Then, there’s cost. In the U.S., a new 2014 model Class 8 costs about $125,000, including about $16,000 in new emission control equipment. In Mexico, that same new truck costs around $105,000. 

According to International Trade Commission valuations, the average value of a used Class 8 truck going to Mexico is around $16,200 in declared export value, depending on mileage and other factors. That declared value may be on the low side for tariff purposes, and is not the actual price that used trucks are going for, according to Vieth.

Even if the purchase price were double the actual declared value price, that $32,000 price tag is about one-third what it costs a comparable new truck. Class 8 trucks require an engine overhaul around the 1 million mile mark (or about the eighth year of operation), but such overhauls are less costly if done in Mexico than in the U.S. because of lower labor costs.

“I would say everyone benefits, especially with California next year saying you have to retrofit trucks to be 2007-model compliant,” Vieth said.

The beneficiaries of these used truck sales to Mexico are likely not the major U.S. fleets such as Schneider National, Swift Transportation or Werner Enterprises. That’s because those fleets average only about 3 to 4 years old. They regularly turn over one-quarter to one-third of their equipment every year.

More likely, Vieth said, it is middlemen and used truck auctioneers who are benefitting from the Mexico export boom in used trucks.

“I would assume a lot of these trucks are being purchased at auctions by people in the crossborder U.S-Mexico trade,” Vieth said. “Most of the big national U.S. fleets by and large don’t have any of these trucks.”

Still, there are benefits to Americans. “It’s good for the environment here, we’re getting rid of older, more polluting trucks,” Vieth said. “We’re getting rid of much older equipment and replacing it on our highways with equipment with that meets current emissions standards.”