NTEA members are generally much more optimistic now than they were a year ago, according to a January survey of over 200 companies. But plenty of changes are expected that will present both challenges and opportunities.
The session titled “State of the Industry Overview — the NTEA Perspective” featured views on where the US truck equipment industry is today, where it appears to be going, and how global and regulatory changes might impact it.
The panel consisted of Jim Carney, NTEA executive director; Tim Campbell, managing director of Campbell CV Marketing Group in the United Kingdom; and Mike Kastner, NTEA's senior director of government activities.
As part of his presentation titled “Finding the New Normal” Carney reported the results of a recent NTEA member survey. He said that 65% of the respondents believe business conditions will improve, compared to 29% a year ago; 8% think business conditions will decline, compared to 40%; 60% have lower employee levels than a year ago, compared to 70%; 68% report they have a backlog, improved from 59% a year ago (although the number of backlog days has shrunk); and 12% reported aggressive strategies, up from 7% a year ago.
91% think that consolidation will continue.
54% think chassis supply will be a major issue as business improves.
58% report working at less than three-quarters of their plant capacity, with only 3% reporting full capacity.
“As we start to see sales rebound, capacity's going to be a big issue,” Carney said. “It will create a lot of competition. People want to fill their capacity. They want to fill their plants, so they will be more competitive about pricing.”
He said there are a number of economic issues and short-term keys for a work-truck industry rebound:
- Fuel prices
Carney pointed out that truck sales plummeted when the price of crude oil exceeded $100 a barrel in 2008, and we expect a similar response under similar conditions. “People just jumped off the pickup bandwagon,” he said. “This is something we have to watch. Fuel prices will increase over the next five years.”
- Consumer spending/employment
“This is a key driver of pickup, van, and truck sales. It extends across the commercial vehicle range. Spending has to improve before truck sales improve. This is projected to not happen until late in 2010.”
- Housing market
“It hit its lowest level since they started collecting stats. It continues to deteriorate. Commercial construction makes up 30% of work-truck sales. State and local governments are starting to cut their budgets as unemployment numbers take effect. Land values are reduced.”
Next Page: Fleet vehicle utilization and purchasing
“In the last decade, the US has lost 33% of its manufacturing jobs and 50% of its motor vehicle manufacturing jobs. Does that have impact? Perhaps not immediately, but long term. When you think of vocational schools, and the fact there are no more manufacturing jobs in your area, are they going to offer educational programs to train employees for you in the next five years? Highly unlikely. Will people go into the manufacturing sector if they think jobs are not going to be there in the next five to 10 years? Highly unlikely. This always comes up in surveys as the most critical issue you face — keeping and maintaining good employees.”
- Fleet vehicle utilization and purchasing
“FTR Associates says nearly one in four medium-duty vehicles is either parked on the sidelines or severely underutilized. This means that as the economy starts recovering and truck sales recover, one of the issues we'll face is that companies will just pull out inventory, limiting the recovery to some extent.”
A NAFA survey said 63.5% of fleets extended vehicle-replacement parameters, 47.8% plan to reduce budgets in 2010, and 40.9% will buy/lease fewer or no vehicles in 2010.
“This is pretty daunting,” Carney said.
The move to green was very apparent in the survey, with 38% of fleets saying they will introduce green in the next year and 63.3% will introduce vehicles with better fuel efficiency. Carney said smaller, lighter commercial vehicles are coming to America.
“How does this impact the work-truck industry?” he asked. “Is there growth in the van market? IHS Global Insights says the van market is going to increase over the next four years from 160,000 units in ‘09 to 416,000 in 2014. That's a tremendous increase. With this fleet data, it indicates that's what they're looking at. In talking to fleets, they say they're deploying smaller vehicles that do the same work they were using bigger medium-duty vehicles to do. So they're changing their thinking.”
Carney asked: What will you experience as the new normal in your business over the next five years? He said the mega-issues driving industry change are globalization, globalization technology, government, customers, and consolidation.
He said US truck registrations went from two million in 1970 to eight million in 2000.
“This was a tremendous time of growth — over 200%,” Carney said. “These were good times. This was largely driven by pickup truck sales, van sales, and their product derivatives — chassis cabs and bodies and equipment you installed on them. We were in a growth industry and that was normal. You expected it. And it continued into the new decade.”
Medium-duty truck sales reached a peak in ‘05 and ‘06 with 410,000 unit sales each year, followed by a 61% decline over the next three years.
“Global Insights predicts a slow recovery over the next five years,” he said. “It begs the question, ‘What is the new normal?’ What can we expect? Most of you built your businesses for those peaks we reached in ‘06 and ‘07 and you had to recalibrate your business as we went through the recession.
“It's all been about the economy. I've been in this business for 35 years, and the only time I can recall anything like it was ‘82-‘83, when we had significant declines that hurt the industry significantly.”