Truck dealers see market rebound

| April 18, 2011
Demand is raising used truck prices.

After enduring a global economic downturn and diminished sales over the past couple years, the nation’s commercial truck dealers are waiting to get “back to normal” and setting their sights on the legislative and regulatory challenges ahead, said Kyle Treadway, chairman of the American Truck Dealers.

“Our industry has taken many punches,” said Treadway, president of Kenworth Sales Co. in Salt Lake City, at the ATD Convention and Expo, which runs through April 18 in Phoenix. “In addition to the economic downturn, we’ve had to weather a series of regulatory changes that magnified the ups and downs of our already cyclical business.”

Treadway highlighted five sectors of commercial truck retailing that indicate an economic recovery is under way for 2011:

  • Freight volumes are rising. “Freight rates are pushing upward with more industry-leading fleets announcing rate increases, giving our customers breathing room and the ability to generate profits,” Treadway said. “Experts now tell us that the manufacturing sector has emerged as our recovery’s leader. That’s good news for [dealers] because that means more freight.” The TransCore North American Freight Index for February increased 65 percent over the prior year. The American Trucking Associations Freight Tonnage Index has improved 15 straight months to reach pre-recession levels.
  • Used-truck demand is boosting prices. Treadway said the decline of truck sales over the past three years has resulted in about 70,000 fewer Class 3 to 8 trucks sold in the United States and Canada, while the average equipment age continued to rise in the first quarter of 2011, according to R.L. Polk. A buyer’s definition of what’s an “acceptable” piece of used equipment has changed, he said. With used trucks in demand and harder to find, the average retail price for used trucks has climbed as much as 20 percent in 2010, he said.
  • Parts and service business is improving. “At the same time, we saw our parts and service business volume gradually improve,” Treadway said. “The volume was erratic – two good weeks of higher shop capacity, followed by a poor one – but with each month, the good weeks improved and became more consistent. Our customers’ extended replacement cycles finally met the reality of deferred maintenance.”
  • Truck rental and leasing defies seasonal declines. “The next sign of improved fortunes came in the rental and leasing arena,” he said. “Many dealers saw rental utilization rates defy seasonal declines and hover month-after-month at 90 percent or higher.” Treadway said customers like the flexibility that leasing and rentals provide because of the uncertain economy. “If a ‘double-dip’ recession materialized, they could quickly downsize and minimize their exposure,” he said.
  • New truck orders are increasing. Treadway said orders for new trucks were up in the first quarter of 2011, and manufacturers and suppliers began recalling furloughed workers and expanding and adding shifts. “Some dealers are cautiously recalling workers, resurrecting technician apprentice programs, adding swing shifts and increasing stock levels,” he said.

Treadway cautioned that the economic recovery is not a sure thing and easily could be derailed by volatile fuel prices, an unpredictable regulatory environment, international political upheaval and global disasters. “We need to rebuild inventories, shore up our cash flow, review wage rates and sell some trucks,” he said.

In the legislative and regulatory arenas, Treadway said ATD and truck dealers have an aggressive agenda for the coming year, such as:
• Shaping the nation’s first-ever fuel economy and greenhouse gas emissions standards for commercial trucks;
• Expanding the U.S. Environmental Protection Agency’s SmartWay program to include more fuel-efficient trucks;
• Passage of new highway funding; and
• Introducing federal incentives for new truck sales.

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