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REVENUE EARNING EQUIPMENT, NET | 12 Months Ended
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Dec. 31, 2020
Revenue Earning Equipment [Abstract] |
REVENUE EARNING EQUIPMENT, NET | REVENUE EARNING EQUIPMENT, NET
|  | Estimated Useful Lives |  | December 31, 2020 |  | December 31, 2019
Cost |  | Accumulated Depreciation |  | Net (1) |  | Cost |  | Accumulated Depreciation |  | Net (1)
(In years) |  | (In thousands)
Held for use: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Trucks |  | 3 — 7 |  | $ | 5,061,266 |  |  | $ | (1,818,594) |  |  | $ | 3,242,672 |  |  | $ | 5,432,236 |  |  | $ | (1,696,160) |  |  | $ | 3,736,076 |
Tractors |  | 4 — 7.5 |  | 7,013,595 |  |  | (2,853,591) |  |  | 4,160,004 |  |  | 7,859,371 |  |  | (2,670,234) |  |  | 5,189,137 |
Trailers and other |  | 9.5 — 12 |  | 2,046,768 |  |  | (804,006) |  |  | 1,242,762 |  |  | 2,131,975 |  |  | (808,798) |  |  | 1,323,177 |
Held for sale |  |  |  | 644,132 |  |  | (512,555) |  |  | 131,577 |  |  | 748,435 |  |  | (569,161) |  |  | 179,274 |
Total |  |  |  | $ | 14,765,761 |  |  | $ | (5,988,746) |  |  | $ | 8,777,015 |  |  | $ | 16,172,017 |  |  | $ | (5,744,353) |  |  | $ | 10,427,664 |
_______________ (1)Revenue earning equipment, net included vehicles under finance leases of $5 million, less accumulated depreciation of $4 million, at December 31, 2020 and $12 million, less accumulated depreciation of $8 million, at December 31, 2019. Total depreciation expense related to revenue earning equipment primarily used in our FMS segment was $1.9 billion, $1.8 billion and $1.3 billion in 2020, 2019 and 2018, respectively. Policy and Accelerated Depreciation We periodically review and adjust, as appropriate, the estimated residual values and useful lives of existing revenue earning equipment for the purposes of recording depreciation expense. A reduction in estimated residual values or useful lives will result in an increase in depreciation expense over the remaining life of the vehicle. Our review of the estimated residual values and useful lives of revenue earning equipment is established with a long-term view, which we refer to as "policy depreciation," and is based on vehicle class, generally subcategories of trucks, tractors and trailers, by weight, usage and other factors. These other factors include, but are not limited to, historical, 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. We also assess estimates of residual values of vehicles expected to be made available for sale in the near-term (generally 12 to 24 months) based on near-term market rates and conditions and may adjust estimates of residual values for these vehicles, which we refer to as "accelerated depreciation." The following table provides a summary of amounts that have been recorded for accelerated and policy depreciation related to our residual value estimate changes, as well as used vehicle sales results (rounded to the closest million):
|  | Years ended December 31,
|  | 2020 |  | 2019 |  | 2018
|  | (in thousands)
Accelerated depreciation |  | $ | 236,000 |  |  | $ | 223,000 |  |  | $ | 39,000 |
Policy depreciation |  | 255,000 |  |  | 134,000 |  |  | 40,000 |
Used vehicle sales, net |  | (414) |  |  | 59,000 |  |  | 22,000 |
2019 In the second half of 2019, we began to experience softening in used vehicle market conditions, which was expected to continue throughout 2020. At that time, our inventory of used vehicles to be made available for sale was also higher than expected, which increased the volume of used vehicle sales expected to be sold through our wholesale channels. Due to these dynamics and our updated outlook at that time, we concluded, in the third quarter of 2019, 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, in the third quarter of 2019, we lowered the estimated residual values for our revenue earning equipment, primarily our power vehicles, to reflect more recent multi-year trends and our outlook for the expected used vehicle market. The changes in our residual value estimates, in the third quarter of 2019, resulted in accelerated depreciation of $193 million and additional policy depreciation of $104 million. In 2019, the effect of this change in estimate decreased our net earnings and diluted earnings per share by $219 million and $4.19, respectively. The impact of the change in estimated vehicle residual values that occurred in the third quarter of 2019 was in addition to policy depreciation of $30 million related to the estimate change effective January 1, 2019 and in addition to accelerated depreciation of $30 million that was incurred in the first half of 2019. 2020 In the first half of 2020, we performed a review of the estimated residual values of our revenue earning equipment for both accelerated and policy depreciation primarily due to the COVID-19 pandemic and its impact on current and expected used vehicle market conditions. Prior to our review and the COVID-19 pandemic, we had expected used vehicle pricing to modestly improve in the second half of 2020. However, given the anticipated negative impact of the COVID pandemic on demand, we expected lower used vehicle pricing in the second half of 2020. As a result, in the second quarter of 2020, we further revised our residual value estimates to reflect an expected delayed recovery in the used vehicle market beyond mid-2021 and thus extended accelerated depreciation by an additional year to include vehicles expected to be sold through mid-2022. In addition, in the second quarter of 2020, we also concluded that our residual value estimates likely exceeded the expected future values that would be realized upon the sale of vehicles in our fleet for vehicles expected to be sold after mid-2022 as a result of the expected negative impacts on pricing and volumes related to COVID-19 and our lowered longer term outlook. Therefore, we also lowered our estimated residual values primarily for our truck fleet, and to a lesser extent, our tractor fleet. In evaluating our residual value estimates, we reviewed recent multi-year trends; management and third-party longer-term outlook for the used vehicle market, including impacts of COVID-19 and the demand and pricing of our used vehicles; expected sales volumes through our retail and wholesale channels; inventory levels; and other factors that management deemed necessary to appropriately reflect our expected long-term sales proceeds. The changes in our residual value estimates in the first half of 2020 resulted in additional accelerated depreciation of $144 million and additional policy depreciation of $53 million. This resulted in a decrease to our net earnings of $146 million and diluted earnings per share of $2.78 in 2020. In 2020, accelerated depreciation and policy depreciation also included $92 million and $202 million, respectively, related to the residual value changes that occurred in the second half of 2019. Used Vehicle Sales and Valuation Adjustments Revenue earning equipment held for sale is stated at the lower of carrying amount 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 are deemed to meet the held for sale criteria 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 revenue earning equipment held for sale, fair value was determined based upon recent market prices obtained from our own sales experience for each class of similar assets and vehicle condition if available or third-party market pricing. In addition, we also consider expected declines in market prices when valuing the vehicles held for sale, as well as forecasted sales channel mix (retail/wholesale). The following table presents 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,
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | 2018
| (In thousands) |  | (In thousands)
Revenue earning equipment held for sale (1): |  |  |  |  |  |  |  |  |
Trucks | $ | 40,350 |  |  | $ | 39,009 |  |  | $ | 18,022 |  |  | $ | 38,701 |  |  | $ | 40,220 |
Tractors | 64,446 |  |  | 73,359 |  |  | 12,139 |  |  | 40,213 |  |  | 9,030 |
Trailers and other | 4,147 |  |  | 2,206 |  |  | 6,909 |  |  | 4,224 |  |  | 4,478 |
Total assets at fair value | $ | 108,943 |  |  | $ | 114,574 |  |  | $ | 37,070 |  |  | $ | 83,138 |  |  | $ | 53,728 |
_______________ (1)Revenue earning equipment held for sale in this table only includes the portion where net book values exceeded fair values and valuation adjustments were recorded. The net book value of assets held for sale that were less than fair value was $23 million and $65 million as of December 31, 2020 and 2019, respectively. (2)Total losses represent valuation adjustments for all vehicles reclassified to 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,
|  |  |  |  | 2020 |  | 2019 |  | 2018
|  |  |  |  | (In thousands)
Losses (gains) on vehicle sales, net |  |  |  |  | $ | (37,484) |  |  | $ | (24,432) |  |  | $ | (31,403) |
Losses from valuation adjustments |  |  |  |  | 37,070 |  |  | 83,138 |  |  | 53,728 |
Used vehicle sales, net |  |  |  |  | $ | (414) |  |  | $ | 58,706 |  |  | $ | 22,325 |

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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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