A LOOK at what is in store for the economy, an analysis of the dynamics between manufacturers and distributors, and an update of new products for trailer dealers were all part of the annual National Trailer Dealers Association Convention September 19-21 in Toronto, Ontario.
The association also elected new officers and directors. Serving the association will be:
Florida Utility Trailers Inc
First Vice President
Action Truck & Trailer Inc
Second Vice President
Carpet Trailer Sales Inc
Shamrock Utility Trailers Inc
New Stanton PA
Markham Equipment Sales Ltd
Gormley, Ontario, Canada
The following trailer dealers will serve on the association's board of directors: Jon Comeford, Utility Trailers of New England, Seabrook NH; Don Cartwright, Cartwright Trailer Sales, Amarillo TX; Robert Hesseling, E&R Trailer Sales & Leasing, Middle Point OH; John Northcutt, Northstar Equipment Corporation, Jefferson GA; and Kenneth Rohr, Ken's Truck Repair, Chebanse IL.
Allied members on the board are: Alan Sims, ITS Management, Foster City CA; and Gerard “Jerry” Shepherd, East Manufacturing Corp, Greenwood IN. Selected as an alternate allied director was John Carr, Bridgestone/Firestone Truck Tire Sales, Nashville TN.
Here are highlights from this year's convention:
Trucking analyst sees mixed signals in market
Where is the truck and trailer market today, and how did we get here? Where are we going?
Martin Labbe, president and chief executive officer of Martin Labbe Associates in Ormond Beach, Florida, provided his analysis past, present, and future in a presentation to the NTDA convention. According to Labbe:
Class 2 truck sales are expected to decline approximately 2% as the low interest rate incentives disappear.
Medium-duty sales are expected to boom in 2003. Labbe expects sales for Classes 3-7 to increase 21%, 29%, 8%, 23%, and 41%, respectively.
Class 8 sales should fall about 4% as the effects of the pre-buy fade and the impact of the used tractor glut remains in 2003.
Class 8 trucks, Labbe said, are still trying to recover from the serious sales imbalance that has hammered the heavy-duty market in recent years. Labbe said freight demands required fleets to buy a large quantity of Class 8 trucks in 1997. However, the guaranteed residual programs that truck manufacturers implemented in the late 1990s encouraged fleets to buy more than they actually needed.
Further contributing to the truck-buying frenzy of the late 1990s was the significant increase in freight from rail to truck — a 60% shift at a time when the economy was growing by 20 to 25%.
“It's a systemic problem, and it's to your benefit,” Labbe said. “The rails will not take freight back on, because they cannot handle intermodal freight. They don't know how to do it.”
Labbe expects significant changes in the used truck market. He said first-owner population (five years old or less) will decline by 16% in four years, while primary second-owner population (six to 10 years) will grow by 33% in four years. The result, he said, will be far too many used trucks available for sale — a trend he thinks will continue for “some time.”
Other factors affecting the heavy-duty market include:
The average annual mileage for Class 8 trucks purchased new and leased new tends to be higher than that of trucks purchased used.
Fleets may be pressured to increase in-shop service.
The manufacturing sector of the economy will lead a continued switch from private to for-hire fleets.
The trends in Class 6-7
Describing the Class 6-7 user, Labbe offered these observations:
- The size of these fleets should increase.
- Emission standards may increase demand.
- The used truck market will be in balance.
In Class 3-5, Labbe said he anticipates a 40% growth over the next few years. Contributing to the growth will be the increased use of regional distribution.
Labbe expects the first-owner population (five years old or less) of these medium-duty trucks will grow by 6% in four years. The primary second-owner population (six to 10 years old) will grow by 24% during the same period. The result will be strong demand that will keep the used market more stable than higher GVW markets.
On the lighter side
The changes he sees in Classes 3-5:
More cargo-oriented equipment.
Service vehicles will continue to be operated by the original purchaser. However, Labbe sees a developing secondary market in this market. Alternative uses will be determined by how effectively these vehicles are retrofit.
The average fleet size for Classes 3-5 is growing.
Wholesale/retail distribution will increase its use of these vehicles.
More Class 3-5 trucks will be used in for-hire operation.
Public warehousing will shape distribution. The concept promises to make overall transportation more efficient.
The current economy, Labbe said, is in “malaise”:
The consumer has withdrawn due to uncertainty. He said consumers are now shopping at Wal-Mart and K mart, rather than at upscale stores, and they have changed their pattern of consumption. He attributed that to the stock market's plunge, the uncertainty regarding a confrontation with Iraq, and a loss of faith in institutions.
Wage gains are exceeding inflation. He said the workforce will be bolstered very soon, and will be paid more money in relation to inflation.
Consumer confidence is down, and will stay there. He expects it to “take a whack” due to potential terrorist attacks.
Carrier costs will increase 7% in 2003. “They've never seen a rate increase approach 7% ever, so we've got a situation where profit margins will be squeezed tight,” he said.
Manufacturers, dealers make more money when relationship is strong
In a separate business forum, Robert Nadeau, managing principal of the Industrial Performance Group, said only 3% of manufacturers and distributors are capitalizing on a significant opportunity to improve sales performance, profitability, and customer satisfaction by changing the nature of their working relationships.
He said both parties agree that something needs to be done, but neither side can agree on what to do.
A survey conducted by his company showed that 82% of manufacturers and 92% of distributors say problems in the working relationship are having a negative impact on their businesses. The results of the weak partnerships include increased sales and marketing costs, lost sales volume, and eroded margins.
How would customers benefit if manufacturers and distributors improved their working relationships? They could enjoy lower prices because of the greater operating efficiencies of their vendors; higher levels of service; and access to better information in product availability and order status.
How would manufacturers benefit if working relationships improved? They would lower their costs; increase sales volume, and have access to better information in relation to the market and the customer.
How would dealer/distributors benefit? According to Nadeau, profitability would improve; c osts would be less, sales volume would grow, and they would have access to better information.
Nadeau listed these barriers to improved working relationships:
- Lack of commitment to the relationship
- Lack of trust
- Failure to understand changes in the marketplace
- Insufficient investment in people and technology.
He defines commitment as “the extent to which each party displays a willingness to invest their resources (time, money, people) toward the accomplishment of a common goal,” and trust as “the confidence that develops when the actions of both parties support a common goal.”
The survey that Nadeau's company conducted showed that only 33% of manufacturers and 17% of distributors believed they have clearly defined goals for the working relationship, and only 25% of manufacturers and 17% of distributors have plans for accomplishing those goals.
Here's the distribution paradox, he said: Manufacturers and distributors know that problems in the relationship are having a negative impact on sales, profitability, and customer service, but they acknowledge they're not committed to the relationship, nor do they trust the other party enough to do something about it.
He said “wealth creators” work collectively to identify and eliminate the unnecessary costs and risk associated with selling products and moving goods through the channel. They do it through distributor councils, functional teams, cost modeling, and technology, and by doing it, there are three benefits: levels of trust, communication, cooperation, and connectivity increase significantly; decisions are based on consensus rather than compromise; and the win-win negotiation emerges.