E&MU: Incentives Scarce Despite Slow Sales

By Daniel P. Bearth, Senior Features Writer

This story appears in the March/April 2009 issue of Equipment & Maintenance Update, a supplement to the March 16 print edition of Transport Topics. Click here to subscribe today.

By all indications, it’s going to be a lousy year for equipment sales.

Sales of heavy-duty trucks hit a 16-year low in 2008, and this year could be even worse as freight carriers cut back on capacity in response to a steep drop in demand for shipping.

So what are equipment suppliers doing to spur sales?

Not much, it seems.

Unlike in previous economic downturns, manufacturers and dealers are offering relatively few incentives to stimulate demand.

One reason is that some manufacturers expect the economic downturn to be steep, but relatively short-lived, with a vigorous rebound, perhaps as soon as early summer.

“Business is bad, but it’s not horrible. We’ve seen worse before,” said Bill Wade, executive director of the Heavy Duty Representatives Association in Elgin, Ill., an organization that represents sales agents and independent distributors.

“Distributors are not cutting prices to entice more truck operator business,” Wade said. “These are purchases of necessity.”

Truck equipment inventories, in fact, remain in check and suppliers are also keeping a tight rein on credit to keep customers from becoming overextended and hurting potential future sales.

For that reason, Wade said, when the economy rebounds — and Wade believes that could occur as soon as May — the increase in demand for truck equipment will be noticed “immediately.”

“The slightest uptick, especially in construction, is going to cause people to get trucks rolling again,” he said.

Not everyone is as optimistic.

“I’ve seen a lot of ups and downs,” said James Hebe, senior vice president of North American sales operations for Navistar International Corp. “But I’ve never seen a down cycle like this. And there’s never been one that will have as many long-lasting implications for the industry as this one will have.”

As president of Freightliner Corp. in the 1990’s, Hebe was instrumental in lifting the company from No. 4 to No. 1 in market share for heavy-duty Class 8 trucks. He did it by targeting fast-growing over-the-road truckload fleets and by offering a variety of innovative incentive programs, such as a guaranteed buy-back for trade-in vehicles.

The use of incentives and the loosening of credit standards led to an explosion in sales of Class 8 trucks but contributed to a glut of used trucks, many of which had to be sold by Freightliner and fleets at a loss.

To sell trucks in a down market, Hebe said Navistar will take a different approach in an effort to win business from competitors.

“In today’s market, every customer has his own issues,” he said. “There’s no single incentive for everyone.”

While some customers need help with trade-ins because they are downsizing the fleet, Hebe, who left Freightliner in 2001 and joined Navistar in April 2008, said many fleets are looking for financing from truck manufacturers because of credit restrictions imposed by commercial banks and other independent lenders.

“We’re looking at some deals of incredible size,” he said.

Another factor influencing sales will be the ability of truck dealerships to provide service and support as fleets operate trucks with increasingly sophisticated and complex engines and emission systems, Hebe said.

Some fleets will also take on more maintenance themselves, but will rely on original equipment manufacturers and dealers to provide training, tools and parts, he said.

Wade noted that many companies are taking advantage of the market lull to train sales staff and service personnel. “It’s a lot easier to get a shop full of technicians now than it has been in the past,” he said.

While many industry suppliers seem to be waiting for customers to return, a few are taking steps to entice buyers.

Used truck dealer Arrow Truck Sales is offering one free truck to customers who purchase 10 Volvo trucks, model years 2005 and 2006, from its inventory. Arrow is owned by Volvo Trucks North America.

Kenworth Truck Co. and Peterbilt Motors Co. each extended popular rebate programs that provide $1,000 and $1,500, respectively, to owner-operators that are leased to Landstar System or who are members of the Owner-Operator Independent Drivers Association.

At Fleetco Inc., a Nashville, Tenn.-based trailer dealer, general manager Bill Tirrill said he will offer in-house financing to customers who have been turned down for loans by commercial lenders or who have had difficulty trading used equipment for new trailers.

“Some [trailer makers] are not taking trades,” Tirrill said. “Everyone is in a survival mode.”

To stimulate sales of automatic tire inflation devices, Pressure Systems International is offering customers who buy four automatic tire inflation systems a fifth unit free.

The company also offers a 36-month lease option to finance the purchase and installation of the devices.

Pressure Systems’ Frank Sonzala said the incentive program has kept orders flowing, which has enabled the company to keep its production lines running.

“This has helped us to keep our workforce intact,” Sonzala said. “Whenever things turn around, it will be big and we will have to have good, experienced people in place.”

George Grask, the owner of Cedar Rapids Truck Center in Iowa, said he expects to survive a projected 50% drop in new truck sales in 2009 by doing more parts and service work.

“It’s a hard time to be in any business right now,” he said. “The good news about our industry is the economy does not function without trucks. And if we’re not selling trucks, we’re repairing trucks.”

Grask said he will also use the lull in sales to work on improving relationships with existing customers.

“A good salesperson knows as much about the customer’s business as the customer does. That’s how you can properly spec a vehicle and that’s how you get a product that can improve [a customer’s] operations and lower costs.

“Some things we have no control over, like credit and the price of fuel,” Grask said. “We have total control over the relationship.”

Grask said he sees some interest from buyers in new hybrid truck models because of concerns over fuel economy and the environment.

“For a number of customers, this rings a bell,” he said. “Tax advantages can be substantial for a hybrid.”

The bottom line for truck dealers, however, is freight demand.

“People don’t purchase [trucks] unless there’s a need,” Grask said. “It’s the need that drives the sale.”

“It’s a waiting game,” said Frank Ellett, the owner of a truck dealership in Roanoke, Va. “Buyers are not there. We‘re making as many calls as we can, but buyers are keeping hands in their pockets.”