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Revenue Earning Equipment, Net | 12 Months Ended
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Dec. 31, 2019
Revenue Earning Equipment [Abstract] |
REVENUE EARNING EQUIPMENT, NET | REVENUE EARNING EQUIPMENT, NET
|  | Estimated Useful Lives |  | December 31, 2019 |  | December 31, 2018
Cost |  | Accumulated Depreciation |  | Net (1) |  | Cost |  | Accumulated Depreciation |  | Net (1)
(In years) |  | (In thousands)
Held for use: |  |  |  |  |  |  |  |  |  |  |  |  |  |
ChoiceLease |  | 3 — 12 |  | $ | 12,223,179 |  |  | $ | (4,125,342 | ) |  | $ | 8,097,837 |  |  | $ | 10,824,819 |  |  | $ | (3,645,485 | ) |  | $ | 7,179,334 |
Commercial rental |  | 4.5 — 12 |  | 3,200,403 |  |  | (1,049,850 | ) |  | 2,150,553 |  |  | 3,152,908 |  |  | (1,047,346 | ) |  | 2,105,562 |
Held for sale |  |  |  | 748,435 |  |  | (569,161 | ) |  | 179,274 |  |  | 467,093 |  |  | (336,028 | ) |  | 131,065 |
Total |  |  |  | $ | 16,172,017 |  |  | $ | (5,744,353 | ) |  | $ | 10,427,664 |  |  | $ | 14,444,820 |  |  | $ | (5,028,859 | ) |  | $ | 9,415,961 |
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(1) | Revenue earning equipment, net includes vehicles under finance leases of $12 million, less accumulated depreciation of $8 million, at December 31, 2019 and $23 million, less accumulated depreciation of $13 million, at December 31, 2018.
We periodically review and adjust, as appropriate, the estimated residual values and useful lives of revenue earning equipment for the purposes of recording depreciation expense. Our review of the estimated residual values and useful lives of revenue earning equipment is established with a long-term view based on vehicle class, generally subcategories of trucks, tractors and trailers by weight and usage, as well as other factors. We refer to this long-term view as "policy depreciation." These other factors include, but are not limited to, historical market prices, current and expected future market prices, expected lives of vehicles, and expected sales of used vehicles in the wholesale and retail markets. Factors that could cause actual results to materially differ from estimates include, but are not limited to, changes in technology; changes in supply and demand; competitor pricing; regulatory requirements; driver shortages, requirements and preferences; and changes in underlying assumption factors. We have disciplines related to the management and maintenance of our vehicles designed to manage the risk associated with the residual values of our revenue earning equipment. In addition, we also monitor market trends throughout the year and assess estimates of residual values of vehicles expected to be made available for sale in the near-term (generally 12 to 24 months) and may adjust estimates of residual values for these vehicles to reflect current market rates, which we refer to as "accelerated depreciation." At the end of the second quarter of 2019, we began to experience softening in used vehicle market conditions, which intensified through the third quarter of 2019 and we now expect to continue throughout 2020. In addition, our inventory of used vehicles that is expected to be made available for sale was higher than expected, which has and will impact the volume of used vehicle sales expected to be sold through our wholesale channels. Due to these dynamics and our updated outlook, management concluded that our residual value estimates likely exceeded the expected future values that would be realized upon the sale of power vehicles in our fleet. As a result, we changed the estimates of residual values for our revenue earning equipment in the third quarter of 2019 to reflect more recent multi-year trends and our outlook for the expected used vehicle market. The increase in depreciation expense, resulting from the change in estimate, reduced earnings from continuing operations before income taxes and net earnings by approximately $297 million and $219 million, respectively, in 2019. This amount included accelerated depreciation of approximately $193 million related to lower residual value estimates of vehicles expected to be sold in the near-term and additional policy depreciation of $104 million. The effect of this change in estimate decreased our diluted earnings per share by $4.19 in 2019. The impact of the vehicle residual value estimates change that occurred in the third quarter of 2019 is in addition to the depreciation expense of $30 million related to the policy depreciation estimate change effective January 1, 2019 and additional accelerated depreciation of $30 million that was incurred throughout 2019. We recorded accelerated depreciation expense of $39 million and $30 million in 2018 and 2017, respectively. Total depreciation expense related to revenue earning equipment was $1.8 billion, $1.3 billion and $1.2 billion in 2019, 2018 and 2017, respectively. Revenue earning equipment held for sale is stated at the lower of net book value or fair value less costs to sell. Losses on vehicles held for sale for which carrying values exceeded fair value, which we refer to as "valuation adjustments," are recognized at the time they arrive at our used truck centers and are presented within "Used vehicle sales, net" in the Consolidated Statements of Earnings. For revenue earning equipment held for sale, we stratify our fleet by vehicle type (trucks, tractors and trailers), weight class, age and other relevant characteristics and create classes of similar assets for analysis purposes. For a certain population of revenue earning equipment held for sale, fair value was determined based upon recent market prices obtained from our own sales experience for sales of each class of similar assets and vehicle condition. Expected declines in market prices were also considered when valuing the vehicles held for sale. The following table presents the revenue earning equipment held for sale that are measured at fair value on a nonrecurring basis and considered a Level 3 fair value measurement:
|  |  |  |  |  | Total Losses (2)
|  | December 31, |  | Years ended December 31,
|  | 2019 |  | 2018 |  | 2019 |  | 2018 |  | 2017
Assets held for sale: |  | (In thousands) |  | (In thousands)
Revenue earning equipment: (1) |  |  |  |  |  |  |  |  |  |
Trucks |  | $ | 39,009 |  |  | $ | 44,325 |  |  | $ | 38,701 |  |  | $ | 40,220 |  |  | $ | 30,812 |
Tractors |  | 73,359 |  |  | 35,397 |  |  | 40,213 |  |  | 9,030 |  |  | 21,261 |
Trailers |  | 2,206 |  |  | 1,507 |  |  | 4,224 |  |  | 4,478 |  |  | 5,992 |
Total assets at fair value |  | $ | 114,574 |  |  | $ | 81,229 |  |  | $ | 83,138 |  |  | $ | 53,728 |  |  | $ | 58,065 |
______________
(1) | Assets held for sale in the above table only include the portion of revenue earning equipment held for sale where net book values exceeded fair values and fair value adjustments were recorded. Assets held for sale where fair value was higher than net book value were $65 million and $50 million as of December 31, 2019 and 2018, respectively.
(2) | Total losses represent fair value adjustments for all vehicles held for sale throughout the period for which fair value was less than net book value.
The components of used vehicle sales, net were as follows:
|  | Years ended December 31,
|  | 2019 |  | 2018 |  | 2017
|  | (In thousands)
Losses (gains) on vehicle sales, net |  | $ | (24,432 | ) |  | $ | (31,403 | ) |  | $ | (41,076 | )
Losses from fair value adjustments |  | 83,138 |  |  | 53,728 |  |  | 58,065 |
Used vehicle sales, net |  | $ | 58,706 |  |  | $ | 22,325 |  |  | $ | 16,989 |

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- Definition Revenue Earning Equipment. + References No definition available. + Details
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- Definition Disclosure of revenue earning equipment used in the normal conduct of the vehicle leasing and commercial rental business, not otherwise defined in the taxonomy. This disclosure may include accounting policies and methodology and impact of changes thereto, a schedule of revenue earning equipment cost, accumulated depreciation, net book value, useful lives, assets held for sale. In addition, this disclosure includes vehicles acquired under capital leases and accumulated amortization included within revenue earning equipment. This element may be used as a single block of text to include the entire revenue earning equipment disclosure, including data and tables. + References No definition available. + Details
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