“We're going to see this for years to come,” said Carney, the NTEA's executive director.
In “State of the Truck Equipment Industry: Constant Change,” he said there are some significant industry shifts:
- Increasing use of technology on trucks
“How does that change your business?” he asked. “You have to be aware of that technology and you have to know how to install equipment so it doesn't interfere with communications on the truck.”
- More regulations
“Certainly if you're in this business, you wouldn't disagree that there are many more regulations, recordkeeping, compliance with Federal Motor Vehicles Safety Standards, and new standards getting more complex in the way vehicles are tested and what you can and can't do to vehicles. We have CAFE (Corporate Average Fuel Economy) regulations and emissions-reduction regulations coming in 2015 and 2016 that will significantly change the industry.”
- Customers consolidating
“And they're more demanding.”
- Shift to green
“You've seen a change in the industry where there is more concern about green trucks, hybrid vehicles, alternative-fuel vehicles. Perhaps you're seeing them come to your shop. There is certainly a shift among fleet users to at least consider green.”
- Shift to more light commercial vehicles
“It's a result of fuel-economy regulations. There's the new Nissan vehicle, and Dodge is introducing a new light commercial van. Dodge is also looking at bringing in a small van from Europe. You're going to see more emphasis on light vehicles. As upfitters and manufacturers of products, you have to think about what this means to your business. If your business is largely pickup truck-based or chassis cab-based, will this influx of light commercial vehicles have an impact on your business?”
- Channel changes
“Manufacturers are establishing vertical integrations as part of the consolidation process and a way to get more efficient and get closer to the customer. On the other side, you see smaller companies focus on niche and customization. It's interesting what's happening in the industry. As it consolidates at the top end and companies get bigger, you have this fragmentation on a local level or regional level where small companies have a niche where they can play in and be effect in. Local markets can survive and, in fact, flourish.”
Carney said these trends have come about “as a result of what might have seemed like pretty insignificant change at that time, but as time goes on, those changes become more magnified and you see these periods where business has changed dramatically.”
He divided the industry into these eras:
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Before 1965: Local/regional body builders dominate. “It made sense. If you bought a truck and needed a body, you went to a local bodybuilder, who installed the product for you.”
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1966-1985: Emergence of national body/equipment manufacturers; development of local distributors. “This came about as result of the national highway system. It was easier to transport goods, so companies like Knapheide broke out of the Midwest and started shipping nationally and establishing local distributors for their product.”
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1986-1995: Manufacturers and distributors co-existence; emergence of truck equipment pools. “This was kind of a peaceful time when manufacturers sold to distributors and distributors handled the product of national manufacturers. Even though there were differences, there seemed to be that period where (it was), ‘I'll support you if you support me,’ and manufacturers and distributors got along pretty well. However, we saw the emergence of truck pools around 1983. Chassis pools really began to pick up speed in the late-1980s, and I truly believe the establishment of pools was a real game-changer.”
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1996-2005: Rise of direct selling, manufacturer consolidation; growth of mega distributors and the continued growth of chassis pools.
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2006-2011: More consolidation; growth of manufacturer-owned distribution; independent distributors focus on niche and specialization markets.
“The industry will continue to change,” he said.
Fleet perspective: more with less
Carney said that fleet vehicle purchasing patterns indicate they're “doing more with less.”
He said that according to a fleet survey conducted by the NTEA in January involving 115 companies — featuring a “good cross-section of municipal, utility, and private fleets” — 72% said they do not plan to increase the number of trucks in 2011.
“Fleets will not grow the number of vehicles, but purchasing will be done to replace existing vehicles,” he said. “This is just a matter of obsolescence. Perhaps growth might not be what we think it will be in 2011. Generally, there will not be a lot of growth.”
Other results:
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87% said they will purchase at or below historic purchasing levels. “That an indication that there will not be a lot of growth.”
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76% said they have increased the workload, but 57% said they have decreased resources. “That gives you a good opportunity as the workload has increased and resources declined. You have a tremendous opportunity to step in and be an invaluable resource to these companies.”
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40% said the distributor/truck equipment upfitter was the primary point of contact for truck and truck equipment purchases, and 21% said it was the body/equipment manufacturer. “That's a good indication we have a good foothold in the marketplace with fleets, and they do rely on us for information. You have to put yourself in position to respond to this.”
Move to green
The research also showed an interest in alternative fuels and improved fuel economy. In that regard:
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42% said they will purchase alternative-fuel vehicles, 44% are currently operating them and 38% have a mandate to go green.
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61% said they are making changes to conventional specifications to improve fuel economy.
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72% are achieving higher fuel efficiency by using idle-reduction technology, 57% by vehicle weight reduction, and 43% by improved powertrain efficiencies.
“When you hear people talk about green, automatically you think of hybrid vehicles and you think you can't participate in that market,” Carney said. “But in reality, fleets are thinking about improved efficiencies. What happens when that vehicle gets on-site? What do they do to reduce emissions and improve fuel efficiency? A lot are turning to idle-reduction technology. They're lowering their weight by using different types of body materials. This is where most truck equipment distributors and manufacturers become real assets to fleets — by providing them with information on achieving these objectives.”
What are the implications? Carney mentioned:
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Truck equipment firms are in a good position to service fleet needs. More fleets are seeing those firms as the primary contact for truck and equipment needs.
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Truck equipment companies should be a solution provider for fleets. “Become a technical consultant. Be a partner. If you move from the pure transaction position, you'll be in a much better position to retain fleet business,” Carney said.
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Green does not simply mean selling hybrids or electrics. “Become the expert on engine idling technologies. Become the expert on body and equipment weight reductions.”
He said the long-term outlook is positive, with continuing improved truck sales in 2012 and beyond and “real opportunities to become a solution provider and work with fleets feeling stressed with a higher workload and fewer resources.”
He said medium-duty truck sales — “the heart of our industry” — were up 25% in 2010, from 218,000 to 272,000.
“We're expecting some good increases over the next few years, with a 2011 projection of 284,000,” he said. “That's only a 5% increase over 2010. Steve (Latin-Kasper, the NTEA's director of market data and research) thinks that's conservative, and I agree. I think the increase will be a little bit better than that. We still have a long way to go in spite of projections of better sales over the next three to four years. Including Class 8, in spite of increases in 2010, it's still a fairly low number from a historical perspective. In 2009 and 2010, the numbers were as low as '91 and '92. We are in a sales trough we haven't seen in 20 years. Even though truck sales have increased, we're still at a pretty low ebb.”
According to a survey of NTEA distributors and manufacturers in January, 59% said the most troublesome issue is poor sales and the economy. Increased competition got 9% and lack of qualified employees 8%.
Signs of hope
In spite of all the obstacles, he said there are signs of hope.
The NTEA's survey showed that 49% report a sales increase over a year ago — a huge improvement over the 18% response a year ago and 11% in 2009.
Employment is coming back, compared to a year ago: 33% report higher employment levels and 45% report the same employment levels. And for this year, 45% plan to hire additional employees.
That's because plant utilization has improved, with 7% reporting that they're working at full capacity, compared to 3% a year ago, and 48% reporting three-quarters to full capacity. Only 7% are reporting working at half-capacity or less.
“The problem is that there is still a lot of capacity that has to be used up,” he said. “That leads to some competitive issues. With capacity being that high, people are going to go out and try to get business, and that results in competitive issues.”
A year ago, 56% of respondents reported backlogs of 30 days or less. That figure has dropped to 40% this year. Meanwhile, 28% are now reporting 60 days or more, compared to 13% a year ago.
Business conditions are expected to improve in 2011, according to 79% of the survey respondents. Only 18% said they feel business will decline. When the NTEA asked by how much, 47% said a decline of 10% or less, 35% said it would improve 20%, and 17% said it would improve 20% or more.