Truck financing rates hit 12% as banks exit mid-size fleet market

Why did truck financing get harder for mid-size fleets?

Financing rates for lower-credit small operators now run as high as 12% or more, typically with a deposit required, while investment-grade private fleets borrow at roughly 5.25%. The spread reflects both a lender exodus and three and a half years of deteriorating carrier balance sheets. Kirk Mann, executive vice president at Mitsubishi HC Capital America, said his company stayed in the truck financing market through the entire downturn and watched competitors leave. What remains is mostly OEM captive finance arms, a couple of large independents, and a few bank-led groups. Fleets of 50 to 200 units are increasingly approaching Mitsubishi HC Capital through dealer relationships.

"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.

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 the three-year stretch of the downturn, Mann said.

What happened to used truck values during the downturn?

In January 2023, Mann sat in Mitsubishi HC Capital's Chicago offices with the company's then-chief credit officer and 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. 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."

The unwind arrived as repossessions. "The problem was when things kind of unwound those trucks were coming back because there were payments that people couldn't sustain, and so those trucks came back like in droves," Mann said. The lender has since improved recoveries on transportation assets by 15% by building out a dedicated asset management function.

Did lenders tighten underwriting standards?

Mann said his underwriting did not change. It was the borrowers who did.

"We don't really change our underwriting philosophy or process, but the credit profile of the customer definitely changes during these down cycles," he said. "So it feels like lenders are squeezing up and we're not. We're just trying to do business with customers that have the right credit profile, and of course those deteriorate over a three-and-a-half-year cycle."

Freight cycles normally run 12 to 18 months. This one ran nearly three times that, with the damage compounding along the way. The price of capital is now segregating carriers by how much of that damage they absorbed.

What's driving the equipment replacement wave?

Over-the-road volume at Mitsubishi HC Capital has improved by roughly 30%, Mann said, driven mostly by medium and large fleets replacing equipment they held far past the normal trade cycle. Fleets buying new buy almost entirely new: Mann put it at 80% new, with late-model used taking the rest when the truck is still under warranty and spec'd to fleet standards.

For two years the industry pinned the coming equipment wave on EPA 2027 pre-buying. Mann does not. "I don't think it's a lot of EPA pre-buy. I think it's just simply replacement demand and people have released themselves to go ahead and replace their trucks," he said.

Manufacturers have split on how to handle the 2027 rules, some building the compliant truck and others planning to run legacy models on banked credits or pay the penalty, which leaves 2027 pricing unsettled. His team polls dealers on it constantly and gets different answers depending on the make they carry. He is not expecting a spike large enough to drive purchasing behavior.

One thing that is not happening is expansion. "I don't think what you're seeing today is fleet expansion for sure. The manufacturers can only produce so much, right? So those build slots go away quickly in this when you're recovering," Mann said. Combine a normal trade cycle with three years of deferred replacement, he said, and the number is bigger than the build slots available to absorb it.

Why did rates improve if freight demand didn't?

Mann credits the rate improvement to supply leaving, not freight demand returning. Private fleets that lost volume on their own goods spent the downturn hauling for hire, which added capacity to a market that already had too much.

"So they use their trucks in the for-hire market which continually compressed, created more capacity, compressed price even more, and so it was a tough, tough situation to be in for three and a half years for any for-hire carrier," Mann said.

What do lenders want to see before they finance a truck?

For a carrier preparing to finance, one number supercedes the financial statements. "For the larger customers, every lender out there that does the bigger fleet deals, they want to see that the fleet understands their cost per mile," Mann said. "If you don't understand your cost per mile, nothing else really matters."

Statements coming out of the recession will not look like 2021, and lenders are adding more scrutiny when underwriting. Those who do not know their costs are at a disadvantage when convincing a lender to help them fund asset purchases.

"If someone cannot tell me their cost per mile for all of the categories that are included in their expense load, I really don't have a desire to do anything with that customer. I mean, I just wouldn't," Mann said.

What a 50-truck fleet needs to know

It is not all bad news for carriers who may have made capital allocation mistakes, or bought at the wrong time. It just requires extra effort and due diligence. "What you're trying to do is you're trying to tell a story and paint a picture of improvement," Mann said. "Your driver pay, your maintenance, all the insurance, all the costs associated with that truck: what's happening there. Because the revenue won't cover up bad management on the expense side."

The financing market has bifurcated. Fleets with clean balance sheets and documented cost-per-mile data can still borrow at single-digit rates. Fleets that absorbed three and a half years of losses, or that cannot articulate their operating costs category by category, will pay double-digit rates if they can borrow at all. The lenders who would have bridged that gap left the sector. The ones who stayed are underwriting to the same standards they always did. The difference is the borrowers no longer meet them.