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The State of the Dealer Market

Lucas Deal December 20, 2013

Editor’s note: This is the first of a two part series on the state of the truck dealer market. The second part will publish Dec. 26.

Holiday colors may be green and red, but this time of year, the two most important colors to business owners are red and black.

Most dealers in the North American commercial vehicle marketplace will close the year using their black pens. But the journey to a positive bottom line wasn’t a simple one.

This was a challenging year for the dealer market.

This year will go down as a mixed bag for the truck sales.

New truck sales were steady but average most of the year. A late spike in October provided only a temporary reprieve, as November sales stumbled back in line with year-long levels.

Used truck sales, however, were strong throughout most of 2013.

According to sales data released by Polk earlier this month the first nine months of 2013 represented the second-strongest used vehicle sales period since Polk started tracking used transactions in 2004.

And while NADA/ATD projections for November show the used market sagged slightly coming to the end of the year, overall sales remained strong.

There are several reasons for the uneven year, notes Keith Ely, managing partner at KEA Advisors.

One obvious factor was the rising cost of new trucks. The 2014 emission regulations created a price bump for new vehicles, and some fleets chose to keep older trucks and/or purchase used vehicles to avoid those added costs.

This meant dealers with the access to quality used trucks were able to thrive, says Peach State Freightliner CFO Greg Althardt.

“If you can find good ones that aren’t totally beat up you are going to make good money,” he says. “But the Catch-22 is good used trucks are hard to find. Fleets that have them aren’t in any hurry to give them up.”

Ely adds “finding equipment that is in demand is a challenge. Those good pre-emission trucks are really hard to come by.”

An uncertain United States economy also provided to be a weakening factor to the sales market early in the year. A variety of economic problems formed in 2012 remained unsolved entering 2013. Fleet utilization was affected, and with less trucks needed, few were purchased.

Dick Witcher, CEO at Minuteman Trucks at ATD chairman, says the entire trucking industry felt the impact of the issues in Washington. But as problems were solved, the market slowly responded.

One market segment where new vehicle sales grew in 2013 was the medium-duty marketplace.

Kenny Vieth, president and senior analyst at ACT Research Co., says Class 5 trucks experienced their best order month in five years in October, while Class 6-7 sales also posted great results.

Witcher believes new hours of service regulations and urban delivery needs are forcing more and more fleets to integrate medium-duty vehicles into their operations.

He notes the changing needs of fleet customers also are a contributing factor.

“At one time customers would buy trucks for the max load, now I see more and more are buying trucks for diminishing loads and in doing that they are stepping down in vehicle class,” he says.

Althardt says he’s seeing similar buying patterns at his locations. Peach State Freightliner has added a Fuso franchise to handle the demand.

Both dealers see the medium-duty market continuing grow next year.

“If you look at current and prior year sales we’re seeing more volume coming to the medium-duty market and that trend appears to be continuing,” Witcher says.

The Class 8 market also appears poised for a stronger year in 2014.

Used sales may continue to outpace new sales, but Ely says there is pent up demand for new trucks in the marketplace by fleets that held off purchases in 2012 and 2013. And with early reviews of the 2014 engines coming back positive, Ely says some fleets may look at new tractors as replacements.

“Demand could be up for a year or two, the question for dealers will be can they capture more than their fair share of it?” he says.

Althardt says the higher costs that slowed new truck sales in 2013 will remain an issue with small- and medium-sized fleets, but he believes most national carriers will begin to purchase new vehicles when making replacement decisions in 2014.

For fleets turning trucks over every two to three years, up-front expense isn’t a new phenomenon, he says.

But confidence in large fleet purchases isn’t enough for the industry to project a booming 2014. The dealer market still faces sales challenges.

One comes in the form of the stimulus created tax breaks created for purchasers set to expire at year end. These laws were among the factors that spurred new vehicle sales in October.

Ironically, vehicle performance is another concern. Even with an aging fleet population, the commercial vehicles on today’s roads are performing exceptionally well. Today’s trucking fleet is in good shape; and improved diagnostic technology and maintenance programs has created a national fleet capable of operating well for years to come.

The trucks on North American highways today were built to last — and they’re doing just that.

Leasing and rental

Opinions are mixed on these marketplaces moving forward.

Ely says he’s heard very little on each market’s growth opportunities in 2014. Althardt, on the other hand, says he can see the leasing market improving if freight utilization increases.

Fleets needing an extra few trucks to handle more work are much more likely to consider leasing and rental opportunities over vehicle purchases. And if those short-term needs become long-term needs, the leasing new trucks while looking to make used truck purchases remains a preferred method for some small- and medium-duty fleets.

Leasing and rental also provides dealers opportunities to reach new customer bases, adds John Walsh, Mack’s vice president of marketing.

The aging fleet population means higher risks of downtime, and business owners who cannot afford to maintain old trucks or buy new ones could become excellent leasing and rental customers.

“I think you’re going to see a continuation of high leasing because the price of new equipment is becoming so expensive,” Althardt says. “Small fleets don’t want to be locked in.

“With leasing they can afford that new unit at a reasonable price.”

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