When asked to comment on the state of the truck-equipment industry, Spencer Hinson's first reaction came straight from the heart.
“You got someplace I can break down and cry?” said Hinson, owner of Lodi Equipment in Lodi, California.
He was only half-joking.
The recession has cut a swath through the nation, and truck equipment is no different. If there is such a thing as a “recession-proof” industry — and health care, litigation law, and beer brewing are commonly cited — truck equipment probably isn't one of them.
“Right now, no one will make a decision,” Hinson says. “We've been talking with companies for months and months on the same deal, and it doesn't happen. Deals just aren't happening. They go, ‘Oh, we're just not quite ready,’ or their staffing situation changes. The person who was doing the homework is gone. There is no urgency to buy anything.”
One of the biggest headaches is the uncertainty over chassis. Shop managers are having a difficult time scheduling the work they need to perform in the shop because they don't know when the chassis will arrive.
“Right now, with the uncertainty of when the units are being built and when you are going to receive chassis, there is the uncertainty of when you need the equipment,” said Denny Jones, VP of sales and marketing for Auto Truck Group and founder of Fort Wayne Fleet Equipment Co in Fort Wayne, Indiana. “If you don't know when you're receiving chassis and when you're receiving equipment, the uncertainty of putting the unit in the shop is tentative at best. If you don't have that knowledge, it's very difficult to plan.
“In this economy today, you can't just stock equipment, hoping you will get the chassis. You can't do that. So you're going to have to probably have longer lead times than you normally have. The big thing is that your suppliers — not just truck-equipment upfitters, but manufacturers — don't have equipment on hand, either. They're not going to pre-build equipment, just waiting for chassis to come in. Nor is the distributor going to pre-order equipment, waiting for chassis to come in. KTP has been down for the whole month of January. GM has plants down in March, so how does the distributor plan for the upfit when he's not sure when he's getting chassis? And how does the equipment manufacturer plan when he's not sure when he actually needs to ship materials?”
Joe Recker, president of Kalida Truck Equipment in Kalida, Ohio, says he has had problems with GM, but some others — International, Sterling and Dodge — have provided quick delivery.
“Obviously you try to schedule your shop when you get the order and you order equipment to coordinate at the same time it comes in with the cab and chassis,” he said. “We don't like sitting on excess inventory. That eats up cash flow a bit. We've had a couple municipalities that are paying for a portion of it up front and paying the balance when the truck comes. We've had some luck with that. For the most part, we try to keep sales going so that doesn't have a big effect on the overall scheme of things.”
Jones says that if the situation continues and delivery won't be done on a known basis, the whole cycle will just stretch itself out and lead times will be extended.
“But that may be OK,” Jones said. “People may say, ‘That's the way it is.’ You saw the announcement yesterday: 10,000 GM people are being laid off in a salaried site. That's 10,000 fewer people controlling plants, scheduling and ordering. The order to deliver is going to be extended because of uncertainty when all the components will be available for build.”
Says Hinson, “What I see in the future that I think is going to be interesting is the general health of the supply base for the Big Three, and even the Navistars, PACCARs, and Freightliners. As they are having financial difficulties and some are failing, when business picks up, are they going to be able to meet demand? Those guys are going to struggle. And then as orders pick up, who's going to build all the wiring harnesses and lights? Is that stuff going to cause delays? So there is the supply level and then there's the whole emissions thing. It changes the whole landscape of who's in what business for all these various products. Which trucks are meeting the emissions? Which engines? Caterpillar's not building truck engines anymore.”
How are truck-equipment distributors faring right now in the midst of a gnarly recession? That depends in part on their focus and geographical location. Here's a cross sampling:
Lodi Equipment
Hinson says 30% of the company's business is in truck chassis, because they buy them and sell completed units, and 70% is in truck bodies, cranes, and compressors, and the parts and service associated with them.
The good news for California is that farmers had a very prosperous year — particularly in rice — and bought a lot of truck equipment and bodies. But the construction market crashed.
“If you do anything related to home building and the excavation people, it's deader than a door nail,” he says.
He says the municipal business has been “reasonable” for Lodi Equipment and better for those who specialize in it.
“It's good in the energy sector: oil and gas,” he says. “I'm working with a customer who's going to service a construction firm that's building all the wind farms. There's a lot of federal money and private money going into alternative-energy technology and building an infrastructure for that. But in mining, gold is good and copper is in the toilet. We did a big deal with Freeport McMoRan in Arizona, and six months later, copper is at a low. It happens so fast. But gold is $900 an ounce. I don't know how to figure it out.”
Hinson says the only positive is that “people are wearing out their equipment because they're not buying anything new. When business comes back, it should come back strongly. There should be a lot of demand and a lot of equipment that needs replacing.
“I also see a lot of potential body-transfer refurbishment work because of new emissions coming down the road. Depending on different fleet situations where guys have certain requirements to have fleets be a certain percentage meeting the emissions standard, I can see lot of them saying, ‘Gee, I have a 5- or 6-year-old truck. It's not terribly worn out but it's not meeting emissions, but my body is going to have at least another five years. I might as well swap it over.’ ”
Hinson, who used to work in the truck business, says car and truck dealers traditionally have said that a measure of a good dealership is one that can cover all overhead with parts and service work. If it can, it's running a healthy dealership and truck sales are sort of a bonus.
“The problem is that this downturn has hit so strong and fast,” he says. “Say a guy has 10 over-the-road trucks and 10 service trucks or a fleet of delivery vans. If business is off 20% and you have 10 of them and you have to park two, well, you are going to park the two of them that need repairs first. You're not fixing the old ones. You idle the fleet. And worse yet, they start cannibalizing them for parts and not buying them from you.
“So for the first six months or whatever, the parts and service work doesn't pick up because everything is idle. You have things sitting in the lot and nothing's moving. It used to be that if things slowed down on a nice, even basis, parts would pick up as you go. But this one hit hard. Eventually, they have to fix them or replace them. But I don't know if we're six months or a year away. I think the consensus is a year.”
Kalida Truck Equipment
Recker believes his company is one of the few experiencing a spike. He says business from November through the end of January was 40% higher than normal — largely because of heavy snowfall in Ohio. Toledo, where Kalida has a branch, was hit by over 30 inches of snow in January — the second-most ever, behind 1978, and just one-tenth of an inch less.
“The snow-removal and landscape guys are making some money this winter, and then they're spending it,” he says.
Recker is optimistic about the possibility of at least maintaining a steady amount of municipal business.
“We are doing some considerable bidding and getting quotes out to townships, cities and counties,” he says. “It's not that way in every county, but a lot of guys are at least looking at purchasing some new equipment. We looked at the state of Ohio, and it looks like there's some potential to get a portion of that. People are looking at trying to take advantage of the emissions, knowing that in 2010 the average truck price might go up by $8000-plus. A lot of them, if at all feasible, are going to purchase this year, which could make it slim next year — kind of like what happened in ‘06 and ‘07.
“Contractors, plumbing and heating guys, and those who run big trucks with stone and gravel — we haven't done a lot there. That segment is pretty flat. We hope that picks up in the second half of the year. I don't have any proof that will happen, but we're hoping municipalities can carry us the first half and then the normal guys — the contractors, plumbing and heating guys — can take up the slack for the second half of year.”
Recker says Kalida has worked very hard on the parts, service, and repair side of the business, hiring a few ASE-certified mechanics who are experts in diagnostics and pouring money into a radio-ad and mailer campaign. The basic message: We know you might not be looking to buy new equipment, but we can repair your crane, service body, dump body, snowplow, or hoist.
“The last six months, we've done more repair work than ever,” he says. “Some of that was snow-driven. With snow out there, guys are busting up equipment. But we're doing twice as much repair on cranes, dump bodies, van bodies, and liftgates than we've ever done. I think they're trying to band-aid their equipment until they can see what's happening with this economy.
“We're on radio eight months out of the year pretty strong. A lot of places I go, they tell us they hear us on the radio. There's no way to gauge how many come in the door based on radio ads. I just know that our business is better. Our spikes on the Web site are higher and phone traffic is higher when we're doing radio.”
Recker says he doesn't believe things are ever as bad — or as good — as the media portrays them. He thinks this recession is being driven by attitudes more than reality. And so he has tried his best to instill a positive attitude in his employees.
“I tell our employees, ‘People may tell you there's a recession going on, but we're going to choose not to participate,’ ” he says. “We're being very aggressive in the marketing and sales end of it, and we're going to take some market share away. That's the only way I know how to do things.
“Is business as good as two or three years ago? No, but it's not as bad for us as it is for other people. Obviously a number of truck-equipment dealers are going out of business. We've been around since 1975. We've weathered storms before, and we're going to weather this one. What doesn't kill you makes you stronger. We're getting stronger from the challenges we're facing.”
Semi Service
Mike Anderson, VP of the company in Salt Lake City, Utah, says the chassis crisis hasn't had a huge impact because truck equipment is just a small portion of Semi Service's business (20%).
“We do semi trailer repair and tanker repair,” he says. “That business is a bit soft as well. Yellow Freight is not hauling as much freight, so that repair business is awful slow. That part of our business is down 20% in the last three months. What has helped us is that we have municipal business that has kept us busy — some state contracts. We do dump bodies, snowplows, service bodies, flatbeds. This is a good time to have some state contracts in the back pocket. In the last 18 months, we've landed five new contracts. We got a bit more aggressive in bidding and went after that business, which we hadn't been in very much for the last 15 years.”
Another positive factor is that Utah hasn't been hit as hard as states such as Michigan, California, and Florida.
“It usually hits Utah later,” he says. “Even in 2001 and 2002, when we had that hiccup, it didn't affect us as bad as everywhere else. The state of Utah's largest employer is the Church (of Jesus Christ of Latter-day Saints), and they have that big conference center that's being built downtown. A lot of people are being kept busy on that.”
Other than that, he doesn't see many signs of optimism.
“As far as anything good that's coming up in the near future, I can't see any,” he says. “I watched President Obama's speech and thought he was pretty good, talking about getting things going. But we've cut back our spending in the company and we're not buying unless we absolutely have to have it. We're not stocking as much, and we've cut our inventories back. I think everybody else is doing the same thing.”
Anderson's big project right now is finding 17 to 20 acres of land to build a 90,000-square-foot building, possibly scaling back to 60,000 square feet. Now that Target Stores has purchased Semi Service's facility, the company has to be out by the beginning of next year.
“We're looking to buy property, which is kind of scary,” he says. “Do we want to go in debt this year? No, but what do you do? We have to be out of our building.”
Fort Wayne Fleet Equipment Co
Jones says he doesn't believe the picture will improve until the credit crisis is resolved.
“I'm pretty optimistic about the credit situation being resolved,” he says. “I don't think anything is going to happen no matter what type of economic stimulus you put together unless credit and banks - and we're talking about them being one and the same — are solvent or appear to be solvent. Banks will drive the lending and drive the economy.
“And, of course, consumer optimism has to increase. People have to feel good about buying a new truck. But credit issues have to be resolved before you'll see people coming in and buy work trucks off the lot.”
He says he hasn't seen repair work increase significantly because the worst of the recession has only been impacting business for about four months.
“A year from now, there will be a true indicator if nobody's buying,” he says. “How many bodies have deteriorated in four months? How many hydraulic systems have exploded in four months that should have been replaced? What type of truck equipment?
“Now, there could be chassis stuff. But we're not chassis people. We're truck-equipment people. How many really terrible things are going to happen in four to six months? Probably not too many. But a year from now, when it's been a year and six months, you're going to start seeing a lot of repair work. I truly believe that. If it's still the same situation, you'll see repairs increase dramatically. People just can't keep things together for a year and a half.”