Keynoting the American Truck Dealers (ATD) 47th annual convention under way in Orlando, the organization’s chair Kyle Treadway applauded truck dealers for having survived the recession, but he also laid out the challenges that must be met to ensure a successful recovery and future growth for their businesses.
Treadway, president of the Kenworth Sales Co. dealership based in Salt Lake City, pointed out that the 55% drop in heavy- and medium-duty truck sales 55 percent since the industry “peaked” in 2006, “breaks out to be a 47% decline for Classes 3 through 7, and a walloping 66% for Class 8. Surprisingly, only 123 dealer ‘rooftop locations’ have closed as a result – that represents 4.5% of the combined dealer body.”
On the other hand, he observed that dealers’ customers “not only parked many of their trucks, but cannibalized those chassis to keep their aging fleet operating. Over 4,000 fleets with 10 or more trucks filed bankruptcy in seven calendar quarters. Large fleets – of more than 100 trucks – downsized an average of 9%.”Treadway calculated those numbers represent 160,000 trucks sidelined, repossessed and/or sold. “No small wonder,” he added, considering that “inventories declined by more than $100 billion per quarter for three straight quarters last year, according to Longbow Research.”
ATD is not willing to just swallow that loss, Treadway advised, revealing that—by taking a page from the successful federal ‘Cash for Clunkers’ used-car rebate program-- “our legislative office has been hard at work crafting similar legislation for truck dealers, and [is] pulling together a coalition of stakeholders to ride this wave of dealer empowerment. You’ll hear more details in the weeks ahead as we ask you to help lobby your legislators to support this key legislation,” he noted.
Turning to what truck dealers can do to help themselves, Treadway said his business had come through the economic storm in part by relying on “key managers to help meguide our way through some muddy water. Together we have the experience and skillsnecessary to muster the confidence, and sell it to everyone around us. I know I’mpreaching to the choir, because all of you have been through the same waters andknow what I’m talking about.“We’re here today because each of us learned over the past three years to assess thesituation, inventory our resources, prioritize the needs and plan accordingly – whilehopping on one foot and patting our head,” he remarked.
Turning to the task at hand, Treadway said dealers remain challenged by a “host of serious issues,” with none more vexing than the devalued used truck market. “Commercial lenders have been reluctant to put marginal customers out of business for fear of being saddled with more repossessed used trucks,” he explained, a phenomenon that has often been described elsewhere as “zombie truckers.”
Treadway said that Mike Iannelli, managing director of investment banking firm Lincoln International, explained to him that as “used equipment values improve there could be a rush of repossessions and forced sales and lenders seeking to recover funds from companies in arrears. The average gap between a truck’s market value and the amount owed exceeds $25,000,” he noted.
“Credit markets also loom large on our radar screen,” continued Treadway. “We face a small pool of lenders who themselves are under assault. We face critical needs for not only operational and flooring lines, but retail credit for our customers .“Marginal fleets have spent the last three quarters exhausting potential sources of cash,” he pointed out, and “with typical expenses exceeding 98% of freight revenues, there are few places to go [left to these borrowers].”
Treadway said the third biggest issue is customer expectations for productivity. Given that “freight rates for survivors will improve in the second quarter,” he contended that information technology will only grow in importance to truck dealers’ customers. ““Our customers are on the vanguard, and expect us to keep up the pace.”