Just a year ago, truck dealer Dave Olson could not hire enough sales people to keep up with all the customers looking to trade in their old vehicles and buy new rigs.
But these days, Olson and his staff are doing much less selling and a lot more consoling of would-be buyers, as a glut of used trucks has cut drastically into the value of their trade-ins. 'You've got to just look the guy eye-to-eye and tell him, 'Here's what your truck is worth. I'm sorry','' says Olson, vice president of truck sales at North Star International Trucks, a dealership in Minneapolis.Stories like Olson's are becoming increasingly common and the industry is anticipating new truck sales to decline by about 25 percent in the next year. Soaring diesel prices, rising interest rates, and a shortage of drivers have hit the industry in the gut, scaring truck operators away from dealerships.
While makers of heavy trucks have recently had some of their best years ever, manufacturer Navistar International Corp. forecasts industrywide sales this year of 245,000 heavy trucks, down from 286,000 last year.
Navistar recently announced plans to cut 1,100 white-collar workers. The cuts follow layoffs of 800 workers at its Ontario, Canada plant and word that another 500 may soon follow. Freightliner, owned by DaimlerChrysler, also announced the layoff of 3,475 workers at its parts and assembly plants. That was preceded by word from Paccar Inc. that it has been cutting workers and reducing production days at its five North American plants.
Paccar estimates industrywide orders for new trucks are down 30-40 percent over last year. Freightliner says it expects heavy truck orders to drop by about 25 percent for the entire year.
What went wrong? Observers say part of the problem is that aggressive production and sales in the past few years have saturated the market with late-model used trucks, driving trade-in values down by as much as 50 percent in the past six months.
'The fleets just cannot afford to take that loss on their used trucks, so they're running them longer,' said Phil Pinto, sales manager at Adams International Trucks, a dealer in Charlotte, N.C.
The problems are compounded by a continuing shortage of truck drivers. 'If you're in charge of a trucking company, you're not going to buy a truck unless you know you have someone to drive it,' says Jason Altman, an economist for the National Automobile Dealers Association, parent organization of American Trucks Dealers industry group.
Rising interest rates make it more expensive for buyers to finance new trucks and for dealers to keep inventories of trucks. Not to mention the negative impact of spiraling diesel prices, which have risen steadily from less than a dollar a gallon early last year to a national average of $1.447 a gallon as of Aug. 14, according to the U.S. Department of Energy.
'Fuel prices have killed these guys and it looks like it's only going to get worse,'' said Bob Costello, chief economist for the American Trucking Associations. 'When your bottom line is severely impacted from simply the price of fuel going up, you really need to monitor all costs and one of those is (the cost of) buying new trucks.'
The truck business always has been cyclical, but with the confluence of so many factors complicating the current downturn, solutions won't come easily, say those in the industry.
'In the near term, things still remain pretty ugly,' said Jeff Graff, an analyst with A.G. Edwards & Sons in St. Louis. 'The growth rate we've seen over the last couple of years was unsustainable.'
While dealers expect the downturn to continue into next year, they are doing what it takes to drum up business. Part of Olson's strategy is helping fleet operators lure and hold on to their drivers by supplying them with jazzier rigs. Freight companies are giving drivers 'more show-and-go, they're giving them more chrome, they're making them more proud of what they're driving even if they don't own it,' he says. 'Sure the price goes up when you do all that stuff, but the fleet that does all that stuff and gets the driver is going to win.'