STIMULUS: Major buyers of commercial trucks are being pressured to meet 30-day financial objectives instead of making decisions based on what is the best way to maintain equipment.
RESPONSE: An increase in service work and delays in buying new equipment.
ONE EFFECT ON DISTRIBUTORS: More technicians are needed to perform repairs, and fewer are required to install new equipment.
This scenario and many others were evaluated as part of the National Truck Equipment Association's summer board of trustees meeting held July 10-12.
Representatives of major customer groups such as private fleets and leasing companies were among those invited to attend the strategic planning segment of the meeting, helping the NTEA board identify opportunities for assisting its members in a rapidly changing market.
Gathering data from a variety of sources, including the recent regional meeting on manufacturer-distributor relations in Indianapolis, the board identified and prioritized key issues affecting the commercial truck equipment industry — including distributors and manufacturers of truck bodies, chassis, and equipment.
Even after some consolidation, the list of topics is broad:
- Changing roles and relationships
This is affecting everyone that is involved in manufacturing, selling, and buying commercial trucks.
- Offering more
Distributors, chassis manufacturers, and truck body and equipment manufacturers all are under pressure to offer more in terms of product and services to those who buy from them — and often to those who sell to them.
- Regulated more
Regulations and legislation are having substantial impacts on industry companies.
- Internet purchasing
While the Web may offer greater options to retail customers, it may limit options for manufacturers and distributors who use it to communicate with one another. The reason — the two must share technologically compatible systems.
- All in the family
Many industry firms are family-owned businesses. As the older generation seeks to pass the business on to the next, succession strategies may have a great effect on which companies expand.
- More complex trucks and equipment
Things aren't as simple as they used to be. Greater complexity means a greater need for training.
- Labor shortage
A lack of skilled personnel will hamper growth.
- Consolidation and alliances among truck manufacturers
This is expected to result in fewer models on which to engineer commercial trucks. It should fuel additional consolidations of truck dealers, encourage additional use of chassis pools and ship-through programs, and result in more standardization of chassis.
- Too much capacity
When the plant is not at full capacity, manufacturers are tempted to charge less than full price. Pricing pressures have the potential to promote cost-cutting measures that reduce quality and impede efforts to improve services.
The first item listed — changing roles and relationships — is a broad one with multiple causes. At every step of the way — from the truck plant to the end user — specific players in the channel of distribution are doing jobs traditionally performed by someone else. For example:
Truck dealers are offering some of the services traditionally performed by truck equipment distributors. Some truck dealers are installing bodies and equipment. Some are offering to service truck equipment.
Some distributors are serving as brokers, selling commercial trucks that never enter their shops.
Some distributors are reaching outside their local market areas, serving regional markets instead.
Truck equipment is being installed at the truck plant and not through truck modification centers or ship-through programs.
An increase in the instance of truck manufacturers and truck body manufacturers who bypass the distributor en route to the end user.
In response to market pressures, some truck equipment distributors are becoming specialists in a particular niche.
Chassis pools and ship-through programs are giving chassis manufacturers greater control over the ultimate customer of commercial trucks.
Consolidation of truck dealers and fleet purchasers, along with the increased ease of accessing truck customers, also makes it easier for chassis manufacturers to control customers.
Fleets increasingly are relying on finance specialists to make truck purchasing decisions, rather than those in their company who work with trucks.
Whose job is it?
Attendees listed the services that the commercial truck industry companies perform, most of which are traditional roles of truck equipment distributors. The services include: installation, maintenance, customer training, sales, delivery of parts, quality assurance, customer financing, rentals, product design and specifications, customer service, inventory logistics, helping the customer (such as a truck dealer) sell the product, sales forecasting, research and development, product support information, distribution management, market representation, regulatory compliance testing, and regulatory and legislative expertise.
Of these services, attendees particularly saw major changes in the way commercial trucks are sold and in the amount of customer training that is being demanded.
One potential opportunity: customer financing. Less than 5% of truck equipment distributors offer this service.
Distributors under pressure
Those participating in the strategic planning meeting cited a wide range of factors that are putting truck equipment distributors under increased pressure. They include:
Pricing. The market has favored the buyer in recent years, and customers expect lower costs or additional value.
Business standards. Some companies do what is required, such as complying with FMVSS regulations, which puts them at a competitive disadvantage with those who do not.
Shorter lead times.
Warranties. Manufacturers are extending the length of warranties, but distributors may not always receive adequate compensation for the warranty work they perform.
Training the equipment user.
Longer service hours.
Greater liability exposure.
Better informed and more demanding customers.
Changing technology. This tends to give larger companies a competitive advantage in that they are better able to acquire the technology and training required to take advantage of it.
Shortage of qualified employees.
A lack of regional marketing data.
Access to capital.
Direct selling on the part of regional manufacturers.
While sharing many of the concerns of truck equipment distributors, manufacturers have their own set of variables to manage. Among them:
Return on investment.
Keeping plants running at sufficient volumes.
Maintaining adequate market share.
Research and development — having the right product in place at the right time.
For chassis manufacturers, the challenges get more specific:
Regulatory concerns. Chassis manufacturers are particularly concerned about meeting emissions regulations. Unlike truck body manufacturers and truck equipment distributors, chassis manufacturers must invent technology in order to comply.
Legacy costs, such as pension plans.
Representatives of fleets and leasing companies also participated in the session. Among the concerns of these customer groups of the commercial truck market:
Identifying today's customer. The customer base for leasing companies is changing drastically, and leasing companies are challenged to know specifically who to pursue. The traditional contact for leasing companies was the fleet manager. Leasing companies now are dealing with strategic sourcing groups that know finance, but they are not experts in trucks.
Availability of funds. Budgets have been reduced, and fleets are being forced to operate trucks longer. They also are having to reduce payrolls.
Declining number of sources. Fleets complain about occasional communication breakdowns regarding how their commercial trucks should be built and/or equipped. However, they do not have as many places to take their business.
Management myopia. Some fleet managers are being forced to run trucks in ways that meet 30-day financial objectives instead of properly managing their vehicles.
Incomplete sales training. Fleets are asking that the sales personnel who call on them have expertise in financing. Life-cycle costing is an important concept to them.
After listing primary changes affecting the industry, those attending the strategic planning session began filtering out the factors that, from a practical standpoint, NTEA cannot control. The group then began to prioritize the factors that the association could influence and began brainstorming ways to help the industry deal with these changes.
“There are a lot of things that we cannot control,” one attendee said. “But there are plenty of things we can influence. And that influence can make things easier on our industry.”
Of all the factors considered, attendees agreed that the association could most easily increase its efforts — and influence — in terms of the regulations with which industry companies must comply. The sense was that the volume of regulations coming out of Washington has not been inordinately high in recent years, but the effects of some of those regulations — particularly the Transportation Recall Enhancement, Accountability and Documentation (TREAD) Act — have been substantial.
Other ideas centered on ways to help NTEA members distinguish themselves in terms of the quality and value they offer their customers. Details of the plans, along with their authorization, will be on the agenda of the next meeting of the NTEA board of trustees.
Some changes that appeared to be problems became opportunities when viewed from a different perspective.
“If fleets are basing their purchasing decisions on financial grounds, that might be an opportunity,” one attendee said. “If their truck experts are no longer involved with the buying process, we should be in a better position than ever to provide fleets with the expertise they need to make informed decisions.”