What factors are expected to impact trailer manufacturers and their dealers over the next few years?
The National Trailer Dealers Association brought together executives from Great Dane, Wabash National, and Utility to give their thoughts on the factors that will shape the industry over the next few years.
Bruce Ewald, senior vice-president of sales and marketing for Wabash National, addressed a variety of market issues affecting trailer customers and manufacturers. Chris Hammond, vice-president of general sales administration for Great Dane Trailers, presented a summary of key regulatory concerns. Craig Bennett, senior vice-president of sales and marketing for Utility Trailer Manufacturing, concluded with focusing on the manufacturer and dealer relations.
Ewald began by placing the current market in perspective.
“I'm pretty sure we are at the bottom of the cycle,” he said. “But one of the major factors affecting the trailer industry is housing starts. There is a strong correlation between our business and what happens with housing starts.”
Ewald said there is about a six-month lag from the time housing starts begin to drop and trailer orders slow down. The question is when will housing starts begin to improve.
A hint about when the housing industry will improve may be found in how housing stocks perform on Wall Street. Housing stocks — the stocks of companies involved in housing construction — recently have begun to improve, Ewald said, indicating that investors are convinced that nine months or a year from now these stocks will improve in value.
Another key issue facing trailer manufacturers is commodities.
“Beginning in 2004, this industry began seeing major increases in commodity prices,” Ewald said. “Some people may not realize that as much as 70% of a trailer's content is in materials. When commodities increase, there is a tremendous amount of pain that is felt by our industry.”
Ewald does not expect prices for commodities to become predictable anytime soon.
“The real issue we have to face in this regard is to figure out how to work with our customers,” he said. “At what point do we as manufacturers say, ‘Wait a minute. I can't afford to absorb these costs anymore.’
The driver shortage is another key issue. But it's not just drivers. It's also technicians. The shortage will only get worse because of demographic changes occurring in North America, according to statistics Ewald has found.
“How do we attract more drivers into this business?” Ewald asked. “How do we attract more mechanics? Some of the answers are obvious — better work environment, better training.”
Long term, Ewald is optimistic about the role trailers will continue to play in North America's transportation system. Rail, he said, is trucking's chief rival for freight, but railroads face critical challenges in meeting demand.
“I have heard it said that $150 billion needs to be invested in rail to address that industry's capacity needs,” Ewald said.
Yet the capacity of America's roadways is being overwhelmed by traffic as well. To illustrate, he showed two maps of America's highway system — one illustrating over-capacity in 1998, and the other showing what traffic is expected to be in 2020. Cost of congestion today is estimated at $8 billion per year — and growing.
Regulatory issues
Chris Hammond brought the audience up to date regarding regulatory issues facing the industry. These regulations include:
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Canadian underride regulation. A Canadian regulation requiring stronger underride guards for trailers is now in effect. The requirements are more stringent than those found in U S standards.
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Foam blowing agents. An Environmental Protection Agency regulation goes into effect in March to regulate the blowing agents used to produce urethane foam insulation. This will affect manufacturers of insulated trailers and truck bodies.
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Truck braking. Hammond said he expects tighter brake performance standards to come shortly from the National Highway Traffic Safety Administration. While the announcement should be coming shortly, it will not be implemented until a year after publication. And when it does take effect, it will regulate tractors, not trailers. “We feel that there will be very little change on the trailer side,” Hammond said.
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CARB regulations on refrigerated trailers. The California Air Resources Board is making it illegal for trailers to operate in California unless they meet specific performance requirements. The regulation takes effect in December 2008. On the surface, it would be easy to conclude that such a regulation would not affect refrigerated fleets that do not operate in California. However, several states tend to follow California's lead in environmental regulations, Hammond said.
In addition to regulatory issues, Hammond pointed to other important topics that trailer manufacturers and their dealers and customers face. These included:
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Making trucking more efficient
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Corrosion. How can steel be best protected against the effects of the aggressive ice-control chemicals being used on today's roadways?
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Aerodynamics. How can trailers and tractors be designed to reduce aerodynamic drag and improve fuel economy?
Strong partnerships
Trailer manufacturers and their dealers are facing challenges. Craig Bennett offered his thoughts on keeping the partnership strong.
“The relationship between trailer manufacturers and dealers is like a marriage,” he said. “You have good days and bad days. Both parties have their own desires. The more closely dealers and manufacturers can align their desires, the better their chances are for a strong relationship.”
Relationships are effective over the long term only when they benefit both parties.
“It's the American dream to own your own business,” Bennett said. “I believe that independent dealerships are the most effective distribution system in the industry.
“In addition to being independent, we have a symbiotic relationship between us. We are interdependent, just as manufacturers are interdependent with their vendors. We build strong relationships with our key vendors, and we can count on them. There are times when we need them more than they need us, and there are reverse times as well.”
Selling it all
Bennett emphasized the importance of selling the manufacturer's entire product line.
“As we evolve into a mature industry, it is important that we sell and promote all of the manufacturer's products,” he said. “Some products are easy to sell. Others need more pushing. But every sale should advance the gross profit of that dealership, and that helps build a stronger sales team within that dealership. Maximizing the penetration of the manufacturer's product within that area of responsibility will build strong relationships between the dealer and the manufacturer.”
The dealer is the reflection of the OEM's brand, Bennett said. He should want his manufacturer to be successful enough so that the manufacturer can develop new products and systems that in turn will make the dealer more successful.”
Areas of contention
Bennett touched on areas that have caused friction between manufacturers and dealers. These include:
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National accounts and buying groups have grown significantly in recent years, sometimes creating stress for dealers whose territories are local.
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The aftermarket. This is a facet of the business that is experiencing many of the same challenges that the OEM level is facing, Bennett said. The aftermarket is getting more complicated every year as more offshore parts enter the market. He encouraged dealers to sell genuine authorized parts in order to avoid unnecessary liability exposure.
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Warranty and transient warranty. The OEM expects the dealer to handle warranty within the dealer's area of responsibility. The responsibility includes warranty claims for products the dealer sold directly as well as claims for products that develop problems while passing through the dealer's area. It is critical, Bennett said, that the OEM get customer feedback regarding how customer satisfaction of how warranty claims are handled.
“I don't need to mention that this is a cyclical business,” Bennett said. “Sometimes manufacturers need dealers more than dealers need manufacturers. But it's always important that manufacturers and dealers get aligned and stay aligned, adding value through the good times and the bad times.”