Trucks at Work
Making lemonade

Making lemonade

The truck industry is generating good parts and service business due to the aging fleet and the industry is poised to rebound when the general economy improves.” – Bill Jackson, general manager, Peterbilt Motors Co.

For those whose livelihood depends on selling new and used trucks, these are probably the worst of times indeed. Yet as the old saying goes, if you are stuck with lemons, make lemonade – and now is the time when many in the trucking industry, OEMs and fleets alike, are putting that maxim to good use.

Take truck maker Paccar Inc., which owns Kirkland, WA-based Kenworth Truck Co., Denton, TX-based Peterbilt Motors Co., and Europe’s DAF trucks. Obviously, Paccar is projecting a large drop in new truck sales for the foreseeable future as commercial truck owners hold on to their equipment longer. Yet a growing population of older trucks translates into a need for more maintenance, and though selling replacement parts and repair services isn’t nearly as lucrative as new trucks, noted Bill Jackson [standing on the left in the photo below at right], it’s still good business.


“There is some good news longer term about the industry,” he said in Paccar’s 2008 earnings report. “The average age of the North American industry fleet is the highest in the last 15 years. In a normal cycle, many truck operators would replace their vehicles in the next 12-24 months to maintain a competitive operating cost structure.”

Of course, many fleets and owner-operators can’t, with the credit markets the way they are and freight getting scarcer than water in a desert. That means they’ll keep their trucks longer – and thus require more maintenance to keep them going. Again, not the best scenario for a truck OEM, but till one that offers an opportunity: if Paccar’s dealers provide good service to owners of all makes and models today, maybe they’ll win some new customers when sales eventually improve.


That improvement is going to be a way off, though, even by Paccar’s own reckoning – both in the U.S. and abroad, especially Europe.

“Industry sales above 15 tonnes in Western and Central Europe were 330,000 units in 2008, the second best year ever,” said Aad Goudriaan, DAF's president. “[But] the very challenging 2009 market could range from 200,000-240,000 units.”

“Class 8 industry retail sales in the U.S. and Canada were 153,000 in 2008 compared to 176,000 in 2007 and reflected the recessionary economy, particularly the slowdown in the housing and automotive sectors,” added Dan Sobic, Paccar’s executive VP. “Industry retail sales in 2009 are expected to be in the range of 130,000-170,000 vehicles, reflecting continued economic weakness. Our customers are benefiting from lower fuel prices and improved availability of drivers, even though freight tonnage is comparable to 2000 levels.”

The nosedive in diesel fuel prices from last summer’s high of nearly $5 a gallon to around $2.30 a gallon today gave those fleets and owner-operators collecting fuel charges something of a respite. Yet with fuel prices evening out, that fiscal “buffer” is disappearing, fully exposing all trucking carriers to a freight market on fumes.

“The recession in the freight market started almost three years ago, when U.S. economic growth slowed from 3% to 4% a year down to between zero and 1%,” explained Noel Perry, managing director and senior consultant at FTR Consulting Group during a recent conference call with reporters.

Formerly chief economist with Green Bay, WI-based truckload carrier Schneider National, Perry says the freight market is now in true collapse – possibly contracting a further 10% in 2009 – and that puts a lot of cumulative stress on trucking operators that have been struggling through tough times for a long while already.


“We’ve not yet seen the full trauma of this in the industry because the decline in fuel prices created a ‘lag’ with fuel surcharges, giving those that have fuel surcharges a nice bump in cash flow for the last quarter or so,” he said. “But that disappears in the first and second quarter this year. Then they’ll have to deal [with the freight market] without that benefit.”

“The severe recession is affecting our business in North America and Europe. Our fourth quarter 2008 financial results were negatively impacted by reduced gross margins, lower build rates and temporary plant shutdowns,” said Mark Pigott, Paccar’s chairman and CEO. “These challenges are increasing in 2009. [As a result we] are rigorously reducing operating expenses and capital expenditures to align the business with the slower markets.”

As a result of all these economic woes, Paccar’s net income last year dropped to $1.02 billion from $1.23 billion in 2007 – a 17% decline. Yet the key here is that the company remained profitable despite the downturn – remaining firmly in the black. So while making lemonade might not be fancy, if it helps keep you in the black, then you are bound to survive today’s tough economic climate.