Sales, Leasing and Service Business Revives as Recession’s Grip on Industry Loosens

This story appears in the April 26 print edition of Transport Topics.

Business got so bad for Jack McDevitt Jr.’s Mack, Volvo and Peterbilt truck dealerships that he shuttered one of his locations last spring and laid off 60 people, including his son.

McDevitt, a second-generation owner of the dealerships in the New England area, said from his Manchester, N.H., headquarters that his son is now selling cars in Rhode Island, and business is improving at the truck lots as fleets are starting to replace their trucks.

Trucks “don’t run forever,” said McDevitt, who is on Mack’s national dealer advisory council and is its liaison to the American Truck Dealers, which is holding its annual convention April 23-26 in Kissimmee, Fla.

“As tough as it’s been, it’s amazing what recessions do to you,” said Gerald Chunn, president of Lonestar Truck Group, which sells Freightliner trucks in Louisiana, New Mexico and Texas. “I don’t know that our dealerships have been better prepared than they are today,” he said. “We just need the economy to support us a little bit, and we’ll have some fun again.”

A report from WardsAuto.com showing that new Class 8 sales reached 9,025 in March, compared with 8,222 sales the same month a year ago, sparked some additional optimism (4-19, p. 1; click here for story).

“The signs are not isolated, and they’re more consistent,” said Kyle Treadway, ATD chairman and the third generation of Treadways to head Kenworth Sales Co. of Salt Lake City, which has 19 dealerships in seven western states.

Activity in service centers is increasing, more leases are being written, used truck sales are increasing and the value of used trucks is up, dealers said.

“The last three to four months, prices have stabilized on the late-model, low-mileage trucks,” said David Thompson, owner of TEC Equipment Inc., based in Portland, Ore., which sells Volvo, GMC and Mack trucks in 12 locations in California, Nevada and Oregon.

“I’ve been doing this 34 years and . . . generally, the used [truck sales] lead us out,” Thompson said of previous recessions. “We see late-model used [trucks] pick up first, and then the new [models] will follow.”

McDevitt said his used-truck sales last year ran 15 to 18 a month but are now hitting 28 a month.

During the recession, Treadway said, his corporate office overseeing used truck sales was down to only one person, but in March, staffing was up to four employees.

“From talking to the dealers we work with, we get the same sense that the volume is picking up,” said Steve Tam, vice president of the commercial vehicle sector of ACT Research Co. in Columbus, Ind., which tracks 2,000 to 2,500 used-truck transactions monthly.

Tam said used-truck values averaged $33,000 in February, compared with monthly averages as low as $30,000 last year.

Used-truck values are tied to new sales because the depressed value of vehicles is tied to financing problems would-be buyers have faced, Treadway said.

“It affects the equity customers have on their trade-in for their down payment,” he said. “It affects the residual values that we put on the equipment for when we set up the contract; it affects the down payment that we have to have at the beginning. It really put a strain on the lenders and the borrowers both.”

Even buyers with good credit, Treadway said, are being asked for down payments as high as 15% and 20% “because when that truck crosses the curb, it takes an immediate hit.”

Depending on the vehicle and the market, he said, depreciation has been “as bad as 10% immediately, day one.”

In another sign of recovery, dealers said that they are seeing more activity at service centers.

“We are seeing definite improvement” since the beginning of the year, said Chunn, a member of the Freightliner dealer council.

He said that his company, Lonestar Truck Group, tracks daily repair orders, parts orders, average dollars per repair order and the average dollar per parts ticket, which he called pretty good barometers.

As of March, he said, parts sales are up 15% and service sales up 10.5% over the same period a year earlier.

He attributed the higher activity to an increase in the miles trucks are running as tonnage picks up and to parked trucks coming back into service.

Chunn also said the reluctance of firms to buy new trucks means fleets are older and are starting to need repairs.

McDevitt noted that the increased activity in his service centers has allowed him to hire back some of the technicians he laid off last year.

In another sign that dealers are optimistic about the future, some are upgrading their facilities. For example, Chunn and his partners recently spent millions of dollars on improvements.

“We built a new facility in Tyler, Texas, and we built a new facility in Waco, Texas, and expanded one other” in Bryan, Texas, Chunn said.

Likewise, in Illinois, David Gerrard, president of Chicago International Trucks, is expanding his dealerships.

“We just recently closed an acquisition,” Gerrard said. “March 1, we just took over what was formerly the J. Meryl Jones operation.”

That acquisition gives Gerrard a heightened presence in such former Jones locations as Joliet.

“We’ve taken [advantage of] this downturn to invest in our people, invest in our brand and to expand,” Gerrard said.

In another expansion, Rush Enterprises, the large Texas-based chain of truck dealerships, acquired Lake City Cos., which owned a chain of International truck dealerships (4-5, p. 6; click here for online version).

Of the new sales by dealers, the strongest niches are local governments, utility companies and fleets that haul foodstuffs. By contrast, the weakest sales are in construction.

“Anything related to the housing industry,” said Gerrard, “materials, electric, landscape, plumbing . . . those guys got crushed.”

“On the new [truck] side,” said Lonestar’s Chunn, “we feel like the last half of this year, assuming that the economy continues to improve, and starting in 2011, we expect the new truck business to be significantly better.”

TEC’s Thompson said his dealerships in Southern California are benefiting from regulations adopted by the ports there. In an effort to curb greenhouse gas emissions, the ports are banning older trucks and providing grants to help truckers buy new vehicles.

Dealers also said increased activity by truck-leasing businesses was helping keep dealer doors open.

“The dealers that have leasing operations in their businesses, that provide consistent revenue and margin streams to their businesses, those are the folks that tend to weather the storm,” said Olen Hunter, director of sales for Paccar Leasing Co.

All of the leasing firm’s locations are in Peterbilt and Kenworth dealerships, Hunter said, and the leases go almost exclusively to private, rather than for-hire, carriers.

For private fleets, he said, trucking is not their “core competency.” It is just a cost center, so they are happy to lease. With for-hire carriers, however, transportation is their core competency, so they are adept at managing the asset and doing the maintenance, Hunter said.

“We’ve seen 30% growth in [leasing for] food/beverage,” he said, “and we’ve seen petrochemical increases, not quite as impressive. It’s hovering around 10% for the same time period.”

Despite the recession, Dan Clark, president of the transportation finance sector of GE Capital Equipment Finance, said his firm’s lending requirements have not changed.

What has changed, Clark said, is that GE Capital wants to know more now about the potential of the asset for which it is lending.

In March, GE Capital and Navistar International Corp. announced that Navistar’s in-house finance captive was leaving the market and that GE Capital was taking over.

GE Capital, Clark said, wants to hear the borrower’s “story line,” meaning the lender is as interested now in the future as it used to be in the borrower’s past record.

“We’re looking a lot more at projections and spending a lot more time analyzing the month-to-month financials,” he said.