Truck industry heading down wrong road : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Truck industry heading down wrong road

Margaret Allen Peterbilt, makers of the Rolls Royce of over-the-road trucks, isn't the only heavy-duty truck manufacturer hit by hard times, according to experts. Layoffs Jan. 12 at the company's Denton facility are the latest in a string of bad news from the new- and used-truck industry, said Jim Fordyce, who has 30 years as a business advisor and private investor in the equipment industry.

"It's not just Peterbilt. It's an industrywide problem," said Fordyce, who is based in Kansas City, Mo. "I've seen these cycles before, and supply and demand just needs to get back in balance."

He and others say the downturn has been brewing for quite some time. Here's how it unfolded: Starting in the mid-1990s, new-truck manufacturers became very aggressive in trying to sell equipment, so they offered programs that extended generous credit and offered a guaranteed price to buy back the truck in a few years, despite the miles on the trucks. The program succeeded in the goal of stimulating new-equipment sales. New-truck sales exploded, and the industry saw one record year after another.

Now, however, the trucks are coming back onto the used market.

"But there's too much of it, and it's all the same specifications," said Fordyce. "The used-truck glut problem was caused by some artificial stimulation of the new-truck market. This has been compounded by high fuel prices in an industry that typically has a low profit margin."

As a result, weaker entrepreneurs have gone out of business, the number of repossessions are up and now a flood of repossessions is also coming onto the market. That, in turn, lowers the value of used equipment, making it uneconomical to trade it in for a new truck.

Add to that a slowing economy, and a decrease in the demand for new trucks, and the result is stalled production and layoffs, experts said. There are 260,000 used trucks on the U.S. market right now, while demand for used trucks typically runs 170,000 to 210,000.

"I visited last week with one national lender who told me that people he's been doing business with for 15 years are now saying they can't make ends meet," one source said. "They're telling him, `Here's your truck, you can have it back.'"

Dealers, meanwhile, are trying to move trade-ins, which can put a financial strain on their ability to stock the new inventory. At the same time, news of an imminent national recession has dampered buyer enthusiasm.

The problems are fairly limited to heavy-duty, over-the-road truck sales, according to Dave Trussell, spokesman for Irving-based Nissan Diesel America, makers of medium-duty UD Trucks.

"The medium-duty truck business isn't affected as strongly by this," said Trussell. Used primarily as local delivery trucks for everything from food to consumer goods to tow trucks, manufacturing and sales are proceeding along normally.

"There's going to be a little bit of a decline in the medium-duty, maybe 4% to 5%, but nothing earth-shattering," said Trussell. "The sky is not falling. It's a little bit of a retrenchment. But by 2003 it should improve."

-- Martin Thompson (, January 22, 2001

Moderation questions? read the FAQ