Credit Activity Showing Positive Signs, Say Daimler, Navistar Finance Units

This story appears in the July 13 print edition of Transport Topics.

Truck finance executives said recent credit activity indicates financial improvement in trucking, although they saw no signs of a truck sales recovery, while separately, market researcher R.L. Polk & Co. said new truck registrations are likely to hit bottom this year.

Executives with the captive financing arms of Daimler Trucks North America and Navistar International Corp. cited increases in requests for credit and decreases in account delinquencies as omens that could be leading to improvements in sales, they said in separate interviews recently.

“We’ve seen some fundamental improvements since the winter, but it will still be a challenge out there,” Richard Howard, a vice president of Daimler Truck Financial, told Transport Topics. “We don’t see a full recovery, but [the economy] is moving in the right direction.”

Meanwhile, Polk, Southfield, Mich., in a July 6 report, said new heavy-medium vehicle registrations will grow by an average of just 0.3% a year from 2009 to 2013.

Polk’s report on the Future of the U.S. Commercial Vehicle Market looked at the truck market in two categories, Classes 6-8 and Classes 3-5.

Polk predicted that over the 2009-2013 period, new registrations for the light-medium group will increase 3.1% a year. Polk said Class 3 vehicles have replaced Class 8 heavy-duty trucks as the most frequently registered truck size on an annual basis.

Daimler’s Howard said there has been an increase in requests for pricing that he believes is a precursor to actual purchases. Order levels are still low, he said, but the trend was no longer declining. In North America, Daimler manufactures Freightliner and Western Star heavy-duty trucks.

Another sign, he said, is that Daimler has seen loan delinquency rates improve, dropping to 4% from 6%.

“Larger fleets are in relatively good shape,” he said. “They have positive cash flow. They are staying close to customers. We’re not out of the woods, but we expect an uptick in performance by the end of the year.”

Trish Reed, vice president of business operations for Navistar Financial Corp., agreed with her Daimler competitor and said she has also seen small signs for optimism.

“When we look at credit applications for the full month of May, we have seen an increase compared to last May, a small uptick of 5% to 8%,” Reed told TT.

“We’ve also seen an improvement in our 60-days-past-due accounts, which have been really strong as our customers are going through the challenges of this recession, and that is also a good signal,” Reed said. Navistar manufactures International-brand trucks.

Representatives of the captive financial arms of other truck-making corporations — Paccar Financial and Volvo Financial Services — declined to comment on current conditions.

Reed said Navistar Financial executives have noticed that new truck customers who normally arranged their own financing, such as large fleets, have been requesting more credit through Navistar since the recession began. The company was able to accommodate many of the requests without lowering its approval standards, she said.

“Navistar and its predecessors have been operating our captive financing arm through all of the ups and downs of the market for more than 60 years,” Reed said. “Banks may have stricter credit criteria than we do, but that’s because we understand what is going on. We don’t get rattled whether the economy is going into an upturn or downturn.”

In its most recent fiscal year ended Oct. 31, Navistar financed 6,600 new U.S. vehicles, 3,100 of them Class 8 trucks, Reed said.

Daimler’s Howard agreed on the proportional increase for finance captives.

“We started what was then called Freightliner Financial

in 1974, which also was a challenging economic environment,” Howard said. “We like to think of ourselves as being steadfast business partners in both thick and thin, but during thin times like now is when we really define ourselves.”

He said that the division’s goal from the beginning was to be the first financing choice for buyers of Daimler’s various brands.

“We have achieved that, financing 85% of their sales, for both fleets and owner-operators,” Howard said. “We have 26,000 customers on our books today.”

Steven Goodall, vice president for credit and national accounts for Daimler Financial, said that “there’s still not a big appetite for new trucks out there.”

“What we’re mostly doing is helping fleets manage their business,” Goodall said. “They are maintaining their fleets, and they are seeing some very healthful signs out there.”

“It’s owner-operators where we’re still seeing a lot of pressure, a lot of cost cutting pressure,” Goodall said. “The rate cutting for freight hits them the most.”

Goodall said that before the recession, 70% of the trucks that Daimler financed in-house for owner-operators were for new vehicles.

“Today, that is reversed, to where 70% of the owner-operator vehicles we’re financing are for used trucks and only 30% new.”

Staff Reporters Daniel P. Bearth, Frederick Kiel and Jonathan S. Reiskin contributed to this report.