Trucking Companies Extending Purchasing Cycles
Speaking to a Bear Stearns investors group, the chairmen of Covenant Transport (CVTI) and Heartland Express (HTLD) both said that they were more concerned with improving their profit margins than in rigidly following a trade-in cycle.
The reason many trucking companies use the three-year cycle is so that it matches the depreciation cycle of the tractors. In addition, warranties for new trucks were three years in length, and some manufacturers offered guaranteed prices if the trucks were traded in on new ones after three years.
Also, many fleet operators felt that driver recruitment was aided by a cycle that kept all trucks fairly new.
On Thursday, Ryder System’s Chief Executive Gregory Swienton said he too has decided to keep his tractors longer, rather than dumping even more trucks on an already overflowing used equipment market. Ryder (R) is in the business of leasing trucks.Heartland Chairman Russell Gerdin squarely blamed truck manufacturers for the glut, saying their loose credit practices allowed independent drivers easy access to new trucks is what killed the secondary equipment market.
Such practices may have intensified the used truck glut because it made new truck buyers out of , independent owner-operators who, in the past, had constituted the main market for used trucks sold by the fleets.
Gerdin said he is moving Heartland to five-year trading cycle.
Covenant’s chairman David Parker said his company is now on a four-year cycle. He said he does not think drivers will balk at such a change if there is an industry consensus on the policy.
Other company executives, including ones at Knight Transportation (KNGT), echoed the statements of Gerdin and Parker.
