Low Trade Values Challenge Managers

WITH used truck prices slumping in recent months, many tank fleet managers face a real dilemma: Trading vehicles now will bring a significantly lower return on investment, but running them longer may chase away already-scarce drivers.

Tank fleets report that trade values have plunged. For instance, one carrier confirms that the value of its trade-ins has fallen to 35% from 45%. The reason for the drop in trade values is simple: Too many Class 8 used trucks on the market.

In 1999, about 250,000 Class 8 vehicles entered the used-truck market. This year saw another large influx, and the situation isn't expected to improve until at least mid-year 2001. The volume of used trucks is well in excess of the market's ability to absorb them.

With so much used equipment on the market and the prices so depressed, many fleets have decided to squeeze a few more years out of their tractors. Used equipment values aren't the only factors that have affected new tractor sales, though. Other factors include the driver shortage, tighter financing availability, and soaring fuel costs.

As a result, new-tractor sales have plummeted. Recent reports show that new Class 8 tractor sales were down 12.1% for the first nine months of 2000. Overall, new Class 8 truck orders are around 10,000 a month, compared with 30,000 a month last year.

Truck builders reacted to the decline in demand by slowing production, temporarily shuttering some plants, and laying off workers. Freightliner Corp was the only manufacturer to announce plans to permanently close a plant. Specifically, the DaimlerChrysler subsidiary will shut the new South Carolina plant that was just opened by its most recent acquisition, Western Star. Freightliner also laid off about 19% of its workforce in the United States and Canada.

Among other actions, International Truck and Engine laid off 1,900 workers at plants in Ohio and Indiana. Kenworth furloughed about 500 workers at its Ohio plant, which was shut down for two weeks.

All of the layoffs and plant closings should not be viewed as a sign that the truck manufacturing industry is returning to the boom and bust cycles of the past, according to an analysis by Ward's Automotive, a sister publication of Modern Bulk Transporter. The current downturn in new truck sales will be offset by the continued strength of the US economy combined with the flexibility of just-in-time manufacturing.

Further, there is nothing particularly surprising in the new truck sales slump. With the amount of new equipment built over the past few years and trade cycles as short as two years, a glut was inevitable. It was just a question of when, not if.

It's important to remember, though, that manufacturers are still selling new trucks, despite collapse of the used truck market. They are just not selling as many. Fleets can delay some new truck purchases, but they can't totally shut down their buying programs. Drivers are the big reason.

With many fleets (especially dry freight carriers) experiencing driver turnover of 90% or more a year, they have to work hard to keep people in their tractors. Drivers are demanding higher salaries, better benefits, more family time, and better working conditions.

The tractor provided by the carrier plays a big role in defining the working conditions. Drivers want new tractors with plenty of comfort features, such as state-of-the-art entertainment systems, Internet access, refrigerators, and microwave ovens. They want more storage space, more living space, and more comfortable sleeping arrangements.

Caught between the need to keep drivers satisfied and depressed trade values for tractors, fleet managers must perform a delicate balancing act. Those who succeed will help ensure that their companies continue to thrive in coming years.

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