Truck Credit Becoming Easier as More Banks Lend, Fleets Say

This story appears in the July 8 print edition of Transport Topics.

Obtaining financing for truck purchases is becoming easier, with more banks returning to a market that had been dominated by manufacturers’ finance arms, according to several lenders and fleet executives.

While U.S. retail truck sales have been declining moderately, year-over-year, since September, many lenders are flush with cash, in part due to the Federal Reserve System’s expansionary monetary policy.

Mack Trucks has seen more competitors come into the U.S. lending market, said Nicholas Rocco, a vice president of U.S. retail operations for Mack Financial Services.

“The number of lenders in the transportation finance market follows the cyclical nature of the business,” Rocco said. “With economic conditions improving, we are seeing more finance organizations, including banks, in the market and an increased level of competition for customers.”

“There’s no fire sale going on, but the reality is that credit is available at attractive rates,” said Juergen Rochert, a vice president at Daimler Truck Financial USA. The 2008-2009 recession drove many carriers out of business, he said, but the survivors are generally doing well.

The Farmington Hills, Mich., finance captive has a large portfolio, supported by a low loss rate, Rochert said. The division’s portfolio has increased by 60% in the past two years and is at a record high of almost $8 billion.

In addition, credit losses are at a 10-year low, and the delinquency rate is less than 1%, Rochert said.

“For more than a year now, trucking companies have been back in favor” among lenders, he said.

Lenders have benefited from the Fed’s policy of “quantitative easing,” he said, or selling bonds to pump cash into the economy.

“Absolutely, that drives interest rates and the cost of money, which is cheap now, and it does help the economy,” Rochert said.

The Fed said June 19 it probably will start phasing down that program through the middle of 2014.

The cost of money for lenders started rising around June 1, Rochert said, and he is not certain how and when that will filter through to the economy as a whole. For now, though, Daimler Truck Financial is financing about 20% of Freightliner and Western Star Trucks sales, a small boost over the 19% the division financed last year.

Management at Bay & Bay Transportation of Rosemount, Minn., has noticed an ongoing change in credit availability, Chief Financial Officer Scott Stelman said.

“We’ve found that over the last two years, credit has loosened up quite a bit,” he said.

In putting together the carrier’s budget for truck purchases this year, Stelman said he added up all his offers for financing, and they came in at well more than 200% of what he actually needed.

“Last year, we struggled to get to 100%,” he said, adding that two years ago, there was even less available.

“There are lots of options available, but it’s still a disciplined market. You need to have a strong balance sheet,” Stelman said.

GE Capital is the primary lender for financing sales of International Trucks made by Navistar Inc. but also offers financing for the industry at large, said John Conkin, senior vice president of GE’s transportation finance business in Irving, Texas.

“Our loan volume is up, and our business is growing,” he said. “There is plenty of credit availability across all sectors of trucking. I think we’re in a mature part of the credit cycle.”

Conventional loans are a good instrument now, he said, because profitable carriers can use depreciation as a tax deduction. When companies are not profitable, there is no value for depreciation or any other type of deduction, he explained.

“It’s a really good time to be a borrower,” Conkin said, adding that there are more options available, including six years for heavy-duty trucks, whereas five years used to be more typical.

Terry Croslow, chief financial officer of Venture Express in LaVergne, Tenn., said that depreciation deductions are valuable now.

He said his preferences for loan terms are four-year loans for tractors and five-year loans with trailers, rather than the extended terms.

A former chairman of the National Accounting & Finance Council of American Trucking Associations, Croslow said he has been shopping with large money center banks and regional players.

“You get better rates when there’s head-to-head competition,” Croslow said. “It’s a good environment now. Rates are low, and lenders are willing to get creative on terms.”