When Daimler executive Juergen Rochert wants to know how the trucking industry is faring, he simply looks at how quickly his customers pay their bills.
By that measure, trucking’s recovery from the recession is well under way.
“People can pay again for their trucks,” said Rochert, vice president of Daimler Trucks Financial USA, the international truck maker’s captive finance arm. “We’ve seen a dramatic reduction in the number of people who don’t pay on time. Even people who were paying late are catching up. That gives me a lot of confidence.”
That confidence is bolstered by strong sales. Daimler Trucks’ unit sales in the U.S. alone jumped 25 percent in the first half of this year, while incoming orders leaped 102 percent in the second quarter and were up 23 percent in the first half.
Daimler Trucks’ sales were up 33 percent globally in the first eight months of the year, and incoming orders were up 65 percent year-to-date. Last month, the German manufacturer said its truck division expects approximately $1.4 billion in earnings this year — about the amount of its operating loss in 2009, when truck sales plunged.
At an international commercial vehicle fair in Hanover, Germany, last month, the company predicted North American sales of Freightliner and Western Star trucks would increase 10 to 15 percent in the second half of the year.
Used truck sales are strong as well, said Geoff Robinson, vice president of sales, marketing and remarketing. In fact, used trucks account for nearly 80 percent of Daimler Truck Financial’s business. “There’s a big appetite out there for used trucks,” Robinson said, noting “used truck prices have improved significantly.”
The demand driving Daimler is generating higher orders and sales throughout the equipment manufacturing industry, with net heavy truck orders up 21.6 percent in September from August and 38.8 percent from August 2009, according to preliminary figures from FTR Associates.
ACT Research predicts year-over-year production growth of 26 percent in 2010 and an additional 57 percent in 2011. In addition, August sales of used Class 8 trucks surged 55 percent from a year earlier, according to ACT Research.
The summer months tend to be seasonally low order months for Class 8 vehicles, but this summer has seen a stabilization of orders at a more material rate compared to 2009, said Steve Tam, vice president of ACT’s commercial vehicle sector.
But those sales and orders don’t necessarily mean there will be more trucks available to haul freight this holiday season. Many of those unit sales and new orders are for replacement vehicles, not fleet expansion. Freight brokers report trucks are still difficult to find in certain parts of the country, regardless of price.
“Despite upticks in the economy, I don’t think anybody is looking at upgrading capacity,” said Patrick E. Quinn, co-chairman of Chattanooga, Tenn.-based truckload carrier U.S. Xpress Enterprises.
According to the Chattanooga Times Free Press, Quinn said in a speech last week the cost of buying a single Class 8 tractor and three trailers has risen about 45 percent over the past five years, from about $134,000 to $195,000. “Why is anybody going to add capacity and expand when the rate of return is negative?” he asked.
U.S. Xpress, which had approximately $1.4 billion in revenue last year, recently purchased its 50,000th Freightliner truck, and plans to buy about 2,000 trucks this year — all to replace aging vehicles, according to Quinn.
The increasing age of the average heavy-duty truck — now about 6.5 years — threatens to bite truck fleets as replacement costs rise, Rochert said.
“There’s a point in time for most long-haul and regional operators that this stops making sense because of the cost of fuel, maintenance and downtime,” he said.
Daimler Truck Financial increasingly provides funding for repairs of older trucks, he said. “We’ve seen cases where something breaks down, and suddenly an owner-operator is looking at a $7,000 or $9,000 or $12,000 repair bill for a $25,000 to $30,000 used truck. Unless they get help, they’re basically out of business.”
It makes more sense for Daimler to finance repairs “to keep the customer in business” than to take the truck back, repair it and resell it, Rochert said.
The company likely will handle more business of that nature as carriers keep vehicles longer, Robinson said. “The consideration of what is a viable used truck has changed. Eighteen months ago, our fleet customers would have been looking at trucks with up to 250,000 miles,” he said. “Now they’re looking at 400,000 miles.”
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