Dealing with Downturn

VIC Tedesco describes himself as a “news junkie.” He devours The Wall Street Journal every day, reads numerous magazines, and builds his nights around Fox News and CNN.

Since he says he doesn't smoke or drink and is a self-described “boring guy,” he feels he's perfectly within his rights to have this harmless vice. His wife, however, disagrees. Ellen gets upset that his world revolves around the increasingly depressing reports documenting the economic downturn, so she has declared the living room a no-bad-news zone. Which is why he frequently has to unobtrusively sneak into the basement to watch his news shows.

“I'm only allowed a certain amount of above-ground watching of TV news,” says Tedesco, president of Zoresco Equipment Co in Turtle Creek, Pennsylvania. “It's funny. I'm over 50 years old and I have to sneak watching TV.

“The news certainly hasn't been good. If you look at that whole (media) industry, they could do a better job. People start believing the end is near. It gets gloomier than it really is. We've been through tough times in this country, and we'll get through this. I think some of the coverage that a lot of national news networks provide is adding to that negative momentum. It's kind of beating a dead horse.”

At the same time, he believes the American economy has not hit bottom yet.

“If you look at all the leading indicators — if you look at the value of the dollar, the stock market, fuel prices — all the things that tie in with whether people are going to spend money, whether they're a commercial account or Joe Q Public — I think we're in for possibly another year of this,” he says. “And frankly, depending on the elections, it could last another year and a half. You talk with some of the industries and they're doing pretty well. But you look at the truck industry and you see that things get put on hold pretty quickly from a buyer standpoint.”

While truck sales were improving, giddiness was not erupting. Through the first six months of 2008, truck dealers sold 233,693 trucks with GVW ratings above 10,000 pounds — down 16% from the corresponding period of 2007 — and total sales were down 18%.

As for trailers, ACT Research in June adjusted its estimates downward for the rest of the year and 2009. In February, it had projected total trailer sales of 181,500 in 2008 and 220,400 in 2009, but slashed those estimates to 152,00 units in ‘08 and 181,000 units in '09.

How are companies dealing with the economic downturn? We contacted companies in a variety of industry segments in a variety of regions. It is not intended to be a scientific survey — just an interesting sampling. Here are their stories.

Truck equipment

  • Zoresco Equipment Co

    Like many executives contacted for this story, Tedesco declined to give specific figures, but he says that business is down overall — and down “significantly” in the dealer segment.

    “Certainly fleet activity has been fairly strong, but on the dealer side it's extremely weak,” he says. “A lot has to do not just with the economy and the credit crunch — those are pretty obvious — but when you look at what's going on with GM and with the axle strike, not being able to get a supply of GM chassis has certainly hurt. What OEMs are going through right now and the difficulties they're dealing with — that also filters down to what we do on a daily basis and adds to the pain we all feel in terms of business being slower.”

    Tedesco says he and his staff are looking for the opportunities, which requires that they work harder and smarter.

    “Something like this exposes the weaknesses in your operation,” he says. “We've taken extreme steps to eliminate any weakness that has come to the surface. When things are going good, certainly things don't come to the surface as easily or you overlook them or put up with them. Now, you've got to replace your ‘C’ players with ‘B’ players and get more of your ‘B’ players to become ‘A’ players. It's not an easy task, but that's what's prudent in times like this.”

    He believes in cost-control, not cost-cutting. He says they are looking at every expense line item and asking, “Is it making sense?” If there is any waste, they cut it out.

    He has not attacked the advertising and marketing budgets — he says they are larger than they were two years ago. They have not eliminated any positions — they've never had a layoff.

    “Our employees don't have to worry when things get bad,” he says. “If they do what they need to do to help us weather the storm, we'll help them weather their own personal storm. To replace people is a lot more costly than the temporary pain you go through of lost profits of being overstaffed. But from an efficiency and productivity standpoint, anybody who's weak has to improve quickly.

    “What's exciting for us is that everybody on the staff looks at everything. For example, our VP of finance has made some suggestions from the marketing standpoint that really make sense. You get everybody and say, ‘Let’s huddle together,' and it's amazing the ideas that can come from outside that person's area of responsibility.

    “To us, marketing is everything that is done before, during, and after a sale. So we've looked at everything we do. We're looking to improve our accessibility to customers. That's really what we're working hard on.”

  • Lodi Equipment Lodi, California

    Like many companies in California, it has been hammered for the past year to the tune of a 40% drop in business. The lucrative construction market has “pretty much gone away,” says controller Ann Mott.

    She says many of the company's customers in construction markets have literally gotten rid of almost all of their equipment because the market is so slow.

    “If they're going to survive it, they have to get rid of as much overhead as they can,” she says. “Until the construction market picks up, they're not going anywhere. In California, we were slow to get to the top of it, but then you tend to be a little bit quick to get to the bottom of it because it's a very active market. We may come out of it sooner than other areas for the same reason. There are signs that construction is beginning to happen. The state, because the cost of hiring contractors has dropped significantly, is doing projects it had put on the shelf because they had gotten too expensive.”

    She says the company has been looking for work wherever it can find it. The basic strategy is to find new lines of work or find increases in the familiar areas.

    “We build service trucks and mechanics trucks and do a lot of parts sales and repairs, so we've been calling all of our regular customers to see if they need repair work,” she says. “We're being more aggressive, whereas when we're busy we're mostly into new construction of vehicles. We're using repair to supplement work as much as we can. Parts is beginning to come back, but even that was severely impacted. In a normal month, we usually sell $70,000-$80,000 worth of parts. In April and May, it was only $40,000.

    “Things are picking up now. But it's not going to be like it was a year ago, where you had work you were turning away because you didn't have enough availability in the shop.”

    On the down side, the company laid off four people between February and watched two others leave. The ones who remain are working shorter hours.

    “Basically, my shop is running at 60% of the hours that it was a year and a half ago, and the office staff is running at about 70%,” she says.

  • Henderson Truck Equipment Watertown, New York

    “We're probably one of the few companies that can say business is fine,” says VP of truck equipment Glenn Beck. “The retail for the contractor business is down, but we're more municipal-focused because we manufacture plows and spreaders and combination bodies, and that business is pretty steady.

    “It's difficult because material costs are going up. When there's a bid, you obviously bid something three, four, five months ago, and costs are coming in higher than what the bid was because of steel prices going up so much. That's one of biggest problems we have. I wish we could just go back and tell somebody they need to pay a higher price, but on the bid you can't do that. We try to get the best pricing we can from other sources, but otherwise we have to absorb it. Henderson Truck Equipment is our installation arm. Henderson Manufacturing is probably more affected because they're the manufacturer and they're probably taking a 5-7% hit on the margin.”

    He says the fear is that, because there usually is a one-year lag in the municipal market after a recession hits, they could be feeling the pinch later.

    “We hope we don't see that,” he says. “We're watching out for it. People are not putting money into their budgets for new trucks. It could come later. I'm not saying it will, but that's kind of traditionally the way it occurs. Which is why we want to focus more on the contractor side when it comes back. We want to take advantage of that. We might hire another sales person specifically for that area. Or put more focus on it with existing sales people and we'll advertise more, especially to the contractor market.

    “We have hired two more sales people and we're going into some other areas we didn't have. Penetration. From that standpoint, we're trying to drum up more business.”

Truck-body manufacturers

  • Warner Bodies Noblesville, Indiana

    President/owner Mark Boice says sales of haulers and fire and rescue vehicles are holding steady, but utility bodies are down about 30%.

    “We found that a lot of our customers are saying during a bad economy, ‘If I can make this truck last one more year, then I'll do that rather than purchase one in 2008,’” he says. “They're waiting for better times to purchase new equipment.

    “It's hurt our profits because we're used to having that business to eat up overhead.”

    The company hasn't enacted any layoffs, but it lost 25 employees through attrition.

    “We're always taking a closer look at cost control,” he says. “Because we're one of the smaller ones, we do that. Some of our larger competitors have the luxury of looking into that just when times are bad. When you have only 100 employees, you're always checking to see if you're doing everything you can do.”

    On the positive side, Warner in January purchased the fabrication division of Metro Products, an Indianapolis-based fabrication facility that manufactures small- and medium-volume subcontract work for a variety of customers.

    “It's helped us because it's given us a tremendous amount of new equipment and better fabrication equipment so we could do new products and go after some different customers,” he says.

  • Godwin Manufacturing Dunn, North Carolina

    Downturn? What downturn?

    President Pat Godwin Sr. has a sign near his desk that reads, “I'm not smart enough to know I can't do it.”

    Maybe that explains why he says the company is not struggling, but flourishing.

    “We're working overtime,” he says. “Godwin Manufacturing has the best year in history so far, with profits even higher than normal.

    “I've been in this business for 42 years, and every time there's a recession, I get stronger. We are a company that operates at the bare minimum, whether the economy is good or bad. We're always conservative, so therefore we can weather the storm. We don't have stockholders. It probably helps corporations when you don't have to share profits with investors.

    “We have tight controls on costs. It doesn't just happen during a bad economy. It happens every day here. There aren't a lot of corporations in our business that do what we do. When the economy is bad for everybody else, it's good for us.

    “We have a distributor network set up with Galion and Godwin, and our distributors are doing great. Some are weak, but a lot are strong. We also share in the municipal business. We have a tremendous amount of sales through the federal government.”

    The exception is R & S-Godwin Truck Body Company LLC in Ivel, Kentucky, where sales are down 30%.

    “They are a custom shop,” he says, “and people aren't buying as much. They deal with Class 8 trucks more than we do.”

  • CM Truck Beds Madill, Oklahoma

    VP of operations Steve Courreges says the company has escaped the downturn with such strength that it was able in March to open a new facility that increases manufacturing space from 25,000 square feet to 90,000. And that came three years after getting back into the truck-body business.

    “In less than two years, we were out of capacity to meet the demand,” he says. “Since opening the new facility, every bed we build is sold. We feel very blessed that as tough as the economic times are, we continue to experience such success and our product is so well-received in the marketplace.

    “We continue to have a backlog of orders. The big challenge is with the availability of trucks and the Big Three's ability to manufacture trucks and get them out to dealers. Dealers have orders for trucks that aren't being satisfied.”

Trailer manufacturers

  • Jensen Trailers Humboldt, Iowa

    Owner Walter Jensen says he's fortunate that his company is a custom builder of primarily enclosed trailers for specialty hauling needs.

    “They are applications normal companies wouldn't want to get into for heights, widths, and weights,” he says. “Our customers need specialty items they can't get elsewhere. For that reason, we stay fairly busy. We're a complete turn-key shop, so we can build a complete motor home in house.

    “Business has been good. We're just coming off a record year. I can't tell you what the next six months will be like, but we still have things to do. When my suppliers come in, they're surprised at how much we're still buying. They tell me what my competitors are doing, and it shocks me. We've got a customer in Wisconsin that builds big trucks. When you hear that they were selling 2000 a year and are now down to 300, it makes you wonder how bad the rest have it.”

    He says his biggest challenge is the volatility in the steel market, which combined with the increased cost of wheels and tires has forced building costs up 50%.

    “One of our largest suppliers announced today that they no longer will give us pricing,” he says. “We have to call for pricing. We do a quarter of a million dollars in business a year with them, so we're going to be doing a lot of phone-calling apparently. That doesn't help us when our current pricing as of yesterday is no longer in effect.

    “We will adjust the price structure again. We have adjusted twice already this year. It's very difficult, especially since we're pre-selling orders three to four months in advance. I do not hold a customer responsible for that, so I eat that cost. It's tough on our company, but I don't feel it's the customer's fault. He was willing to order a trailer, so I'm willing to sell it.”

  • Clement Industries Minden, Louisiana

    VP of sales Bill Garrison says sales are up 12% compared to a year ago. Why?

    “I don't want to tell the world what the heck we're doing,” he says. “It's a combination of having the right products for the right markets. We're running as fast as we can go.”

    And they will be making even more trailers in a matter of months.

    In the first week of August, Clement expanded into a new 20,000-square-foot facility devoted strictly to aluminum trailer production, taking the company to 200,000 square feet of manufacturing space on 25 acres.

    “We made the decision nine months ago that we were going to be a serious player in the aluminum business,” he says. “We knew couldn't do it in our steel facility. So we started in the steel facility and began to tool up for aluminum production. We have produced a limited quantity of trailers up until now. We expect nowhere near full production, but consistent production, in the immediate future.

    “In aluminum, we saw the completion of our product line. About 60% of dump trailers are aluminum, and we've always worked in the other 40% of the market.”

    He says the key event came on January 3, 2007, when CEO W Glen Hicks and his family sold the stock of Clement Industries — which they founded in 1976 — to a private investment group based in Birmingham, Alabama, with a long history of owning and operating American manufacturing companies.

    “Prior to being bought out by the private investor group, we didn't have the capital to go into aluminum the way it should be gotten into,” he says. “Now we do.”

    Garrison says the company has made major strides in controlling its manpower, which has increased efficiency.

    “We're timing each and every job,” he says. “They have to time in and time out on each job they do. So we're getting accurate man-hours for the jobs done, which we never got before. As you do that, your efficiency goes up because you're monitoring it, and the workforce knows you're monitoring it. We're doing far more work with far fewer people than we did three years ago.”

Trailer dealers

  • Royal Truck and Trailer Dearborn, Michigan

    Owner Carl Bumgardner says he has talked extensively with other dealers around the country, and he concludes that Michigan is getting hit harder than any other area.

    “We don't have the great big trucking companies that other dealers can feed off of, so we deal with smaller companies and owner-operators,” he says. “We're pretty much auto-related. Michigan's probably the worst out of all of them because of the readjustment of all the auto industries. I think the weather's going to calm and auto companies will get back to a smooth relationship. But certainly it's an adjustment period for everybody up in Michigan.

    “We're down 30% to 45% in gross sales. I think everybody is just hanging on and holding on. I don't think there's enough business out there to push you forward into a profit projection.”

    He says the company is more carefully monitoring what it buys and how much it buys, trying not to overstock. A more vigilant attempt also is being made to make sure its customers can afford to pay.

    “Just because their credit is good doesn't necessarily mean we can afford to let them owe us a lot of money,” he says. “We're tightening up the reins as far as how much credit we're giving our customers. Anytime somebody gets over 60 days, we have to do what our vendors are doing to us — take a good look at them and say, ‘We can't let you have it if you're over 60 days.’

    “It's a little worse in Michigan, but all of us are in the same boat. I've talked to a lot of people in the dealer industry. If you were doing $50 million last year, you're probably doing $30 million now. The strong will survive. The people who have banks behind them and believe they are going to survive and who have longevity behind them and are financially secure are the ones that are going to make it. The people who are shallow and don't have the money behind them are not going to make it — if things don't change.”

  • Trailer Sales of Tennessee Nashville, Tennessee

    Part owner and secretary/treasurer Sonny Briley says sales are down 25%.

“We've been here 33 years and we've been through these before,” he says. “I don't think it's as bad as it was in 2000 and 2001. We have a lot of customers who are busy and there's freight to haul, but they're not making any money. When that's the case, then they're not going to spend any money with us, and things slow down. We're in the agricultural business to a certain extent, and that type of business is doing well. It's sort of helping us get over the hump, but there isn't enough of that out there.

“The losses are across the board in sales, service, and parts. When customers have their equipment parked and they're not spending on what they have, it affects your parts and service business just like it does your sales.”

He says there's no “magic answer.” They're just trying to work harder and close more deals. Nobody has been laid off.

They're also working harder to find some niche markets.

“We've had a little bit of success in specialty equipment: expandable trailers, certain dump trailers, dropdeck trailers,” he says. “The lowboy business was good until the last few weeks. It's a sign of the construction business being down. As far as standard flats and vans, regular run-of-the-mill stuff, it's awful quiet right now.

“The hardest part is that all of our costs keep going up, and sales are not following with it. It's the same case with trucking companies. It's hard to get rates up where they need to be. Health insurance and utilities are up, but sales are down — and that's not a good combination.”

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