GM shutdown hurts Rush earnings

The ripple effect from the shuttering of General Motor’s medium-duty business is being felt far and wide in the truck sales business, with national dealership chain Rush Enterprises only the latest to feel the sting of the shutdown’s impact

The ripple effect from the shuttering of General Motor’s medium-duty business is being felt far and wide in the truck sales business, with national dealership chain Rush Enterprises only the latest to feel the sting of the shutdown’s impact.

San Antonio-based Rush took a $4.9 million pre-tax impairment charge to wind down its GMC medium-duty truck dealership agreements, leading to an overall net loss of $1.5 million in the second quarter this year, compared to profits of $6.1 million over the same period in 2008

“We are the largest GMC medium-duty dealership group in the country with 15 franchise locations in six states,” said W. M. “Rusty” Rush, president & CEO of Rush Enterprises, in the company’s second quarter earnings report. “Despite GM’s decision to exit the medium-duty truck market, we remain committed to our customers who own GMC trucks for parts and service support and are confident that we can continue to serve their new truck needs with the breadth of medium-duty manufacturers that we represent.”

Rush Enterprises overall watched its gross revenues decline to $312.1 million in the second quarter this year, a 31.4% decrease from gross revenues of $454.7 million reported in the same period in 2008, in the face of reduce sales from its national network of Peterbilt dealerships two John Deere construction equipment dealerships in southeast Texas.

“As expected, continued weak truck and aftermarket sales caused the second quarter to be the most challenging operating period since this downturn began in 2007,” said W. Marvin Rush, chairman of Rush Enterprises. “Our people are operating with discipline to control expenses and, excluding the GM charge, we remained profitable in the second quarter of 2009 in the face of dismal market conditions.”

“Decreased freight tonnage and overall weakness continued into almost every market we serve,” added Rusty Rush. “Freight-intensive automotive, construction and oil and gas industries remain particularly depressed during the second quarter. Excess capacity for our customers, allowing them to delay maintenance on the trucks they already own and delay purchases of new trucks, remains the norm.”

He added that industry analysts recently dropped the forecast for 2009 U.S. retail sales of Class 8 trucks to 93,000 units, down 19% from the first quarter’s forecast and 33% over 2008. “We believe 2009 sales of Class 8 units will be in the range of 90,000 to 100,000 units, with U.S. retail sales of medium-duty trucks are also forecasted to be down as much as 35% compared to 2008,” said Rusty Rush. “With U.S. Class 8 retail sales forecast now below 100,000 units, we expect this will continue to be one of the weakest markets since 1983.”

However, Rusty Rush also believes the trucking industry is at or near the bottom of this cycle – though, given the continued economic uncertainty, it is virtually impossible to predict with confidence when the cycle will end. “We have experienced a slight increase in new truck orders scheduled for delivery later in the year, primarily from large fleets looking to replace aged inventory prior to the impending 2010 diesel emissions regulations,” he said. “But we expect overall new and used truck sales, as well as aftermarket operations, to remain sluggish through the remainder of 2009.”

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