REVENUE EARNING EQUIPMENT, NET

9 Months Ended

Sep. 30, 2023

Revenue Earning Equipment [Abstract]


	Estimated Useful Lives (In Years)	September 30, 2023						December 31, 2022
(Dollars in millions)		Cost		Accumulated Depreciation		Net		Cost		Accumulated Depreciation		Net

Held for use:
Trucks	3 — 7	$	5,563	$	(2,168)	$	3,395	$	5,282	$	(2,114)	$	3,168
Tractors	4 — 7.5	7,133		(2,819)		4,314		7,153		(3,153)		4,000
Trailers and other	9.5 — 12	1,689		(685)		1,004		1,610		(690)		920
Held for sale (1)		723		(561)		162		388		(286)		102
Total		$	15,108	$	(6,233)	$	8,875	$	14,433	$	(6,243)	$	8,190

————————————

(1)Revenue earning equipment held for sale, where net book values exceed fair values, are adjusted to fair value on a nonrecurring basis and these adjustments are considered Level 3 fair value measurements. The fair value of revenue earning equipment held for sale adjusted with Level 3 fair value measurements was $13 million and $3 million as of September 30, 2023 and December 31, 2022, respectively. The net book value of all other assets held for sale were below fair value.

Residual Value Estimate Changes

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. Reductions in estimated residual values or useful lives will increase depreciation expense over the remaining useful life of the vehicle. Conversely, an increase in estimated residual values or useful lives will decrease depreciation expense over the remaining useful life of the vehicle. Our review of the estimated residual values and useful lives of revenue earning equipment is based on vehicle class (i.e., generally subcategories of trucks, tractors and trailers by weight and usage), historical and current market prices, third-party expected future market prices, expected lives of vehicles, and expected sales in the wholesale or retail markets, among other factors. A variety of factors, many of which are outside of our control, could cause residual value estimates to differ from actual used vehicle sales pricing, such as changes in supply and demand of used vehicles; volatility in market conditions; changes in vehicle technology; competitor pricing; regulatory requirements; driver shortages; customer 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. For the nine months ended September 30, 2023 and 2022, we did not adjust the estimated residual values and useful lives of existing revenue earning equipment.

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 Condensed 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 components of "Used vehicle sales, net" were as follows:


	Three months ended September 30,				Nine months ended September 30,
(In millions)	2023		2022		2023		2022

Gains on used vehicle sales, net (1)	$	(52)	$	(116)	$	(183)	$	(362)
Losses from valuation adjustments	5		3		9		6
Used vehicle sales, net	$	(47)	$	(113)	$	(174)	$	(356)

————————————

(1)Includes gains on used vehicles sold as part of the exit of the FMS U.K business of $2 million, for the nine months ended September 30, 2023, and $15 million and $43 million, for the three and nine months ended September 30, 2022, respectively.