Dealers Enjoy The Boom And Look Ahead
Top dealers talk about current business conditions, the upcoming emissions regulations, service department capacity, parts availability and more.
Denise Rondini, Contributing Editor
When asked how business is, Mike Waters, president of Waters Truck and Tractor Co., Columbus, Miss., and the 2005 American Truck Dealers/Heavy Duty Trucking Truck Dealer Of The Year, said with a chuckle, "It's almost fun again."
And Waters was not the only truck dealer to have this attitude. If the Truck Dealer of the Year winner, finalists and nominees are any indication, the truck business is booming.
For Jon Pritchett, president and CEO of Nextran Corp., Lake City, Fla., and Dealer Of The Year finalist, "Last year was very good for us. We tracked very close to the industry with a move of about a 47% increase in truck sales over the prior year."
Bob Dwyer, president of Allentown Truck Sales, Allentown, Pa., and a Dealer Of The Year finalist, said, "Business is strong right now, which presents its own set of problems. You can't get vehicles and some customers don't understand that."
Jim McCullough, president of General Truck Sales & Service, Memphis, Tenn., and a Dealer Of The Year nominee, is seeing strong Class 8 sales but said the medium-duty truck business is not as robust right now, albeit that business is not as cyclical as the heavy truck sector.
2007 Looms
While dealers are enjoying the current business conditions, they are well aware of the upcoming 2007 diesel emissions standards.
In fact, many of them have noticed a change in their customers' buying habits.
Tim Fyda, Dealer Of The Year finalist and president of Fyda Inc. of Columbus, Ohio, said, "No doubt, they absolutely are changing their buying cycles. In fact, a number of customers already have put in orders through 2006."
He added, "That's unusual. Normally people wouldn't be two years out on an order."
Doug Cayce, another Dealer Of The Year nominee and president of Northwest Ford & Sterling Truck Center/TransChicago Truck Group, Franklin Park, Ill., concurred.
"I can't put a percentage on it, but I can say that there is no question that our customers are shrinking their vehicles' life cycles. They are buying a truck now and replacing it late in 2006. Eventually they will skip a cycle turn."
While Waters is not seeing any actual pre-buying, "we are getting a lot of conversation and a lot of discussion from our customers," he said. "They indicate they are laying the groundwork with their managers to try to educate them about what is coming up and what the impact might be on their businesses so they can get purchases brought forward."
However Carter Baker, Dealer Of The Year nominee and president of Peterbilt of Knoxville, Knoxville, Tenn., has been surprised at the level of the pre-buy. "We are seeing a little bit of it, but not as much as I thought I'd see."
He added, "I think truck users realize now that the 2002 engines were not the unmitigated disaster they expected, so they aren't as nervous this time."
McCullough does not believe the uptick in truck purchases is necessarily the result of pre-buying. Rather he thinks it is the result of pent-up demand. "I think fleets that survived the downturn are doing well and are in good financial shape. Because of the depressed values of trade-ins and other problems we had in the truck market, they did not buy trucks in the past few years so their equipment is old. Now they are in a much better position since demand for freight is up, so they are updating their fleets."
Service Back Ups
The industry is rife with stories of long waits at dealers' service departments - waits to get vehicles serviced and, in some cases, even waits to get a vehicle looked at.
Waters said that there have been situations where a customer has had to wait a day or two to get into the shop depending on the type of the repair. "But we certainly are working really hard to get people in as quickly as possible and get them turned around. If that means working weekends and some nights we are prepared to react to that."
McCullough said service delays are an issue for his dealership "every now and then."
He added, "We are running at full capacity. We have tried to do something to address it." The dealership has found a more efficient way to deal with preventive maintenance appointments and inspections to get customers needing those services in and out of the service department quickly.
Cayce agreed that service department lead times have been extended.
"Our philosophy is, if there is a vehicle that needs to be repaired, we're going to fix it and we need to get it out of here as quickly as possible. But lead times can be extended by as much as a week, depending on the nature of the repair."
Fyda believes much of the backlog at dealership service departments is because customers know dealers have the trained technicians and appropriate tools available to make repairs. He said this is particularly true for the over-the-road trucker who is operating outside his local area.
"That puts a strain on dealers to have enough technicians - especially if you are open 24 hours a day, seven days a week like we are."
Parts Availability
In addition to the reported backlogs at dealership service departments, there also has been some talk of a shortage of repair parts.
Waters said he is seeing more back orders coming out of the parts distribution centers (PDC). "It might be because a vendor is having a supply problem with raw materials for a particular part of an engine they are making," he said.
"We're just going to have to work through it when it occurs. When we are alerted to it, then we can search other dealerships or other sources to try to find the part anyway we can in order to get the customer back on the road."
Pritchett has been experiencing some shortages as well. "The suppliers providing the parts obviously are as challenged as the OEMs by taking the line rates up as quickly as the demand has required.
"So the availability of parts also has been affected," he said. He believes the problem was more pronounced early last year in the first and second quarters and seemed to settle down in the third and fourth quarters.
For Dwyer, freon is the most noticeable problem. "You can't get freon and if you can, the prices are going through the ceiling."
He also believes that since the industry went from delivering 130,000 trucks in 2003 to more than 200,000 last year, manufacturers and suppliers just can't come up with the raw materials they need.
McCullough credits his inventory management team for the fact that he hasn't seen a shortage of repair parts. "We have an inventory management team that helps make sure we have the parts we need. In addition, our manufacturers have done a good job of helping us get the parts from the warehouses."
Option Consolidation
The industry has seen a consolidation of component availability or alignments of truck manufacturers with specific component suppliers. This is most apparent with engines but extends to other components as well. This trend has been a source of concern for both dealers and fleets.
"When Detroit Diesel went away for us, that was a big deal," Baker said. "We survived it and we're now seeing more interest in Cummins engines, for which I am glad. We love Caterpillar, but you've got to have two choices available to your customers."
On the other hand, Cayce sees the consolidation as positive. "It has improved our business, in that we can align ourselves with our manufacturer and support what they are doing."
He continued, "It was more difficult when there was a variance of which engine manufacturer the truck manufacturer was going to support today."
Cayce admits his dealership may have lost some business as a result of not having a certain engine available. However, he also believes he may have converted other customers to his truck brands.
"One of the things I think is a pitfall of sales is the concern about what's going to be the 'flavor of the day.' Today we are going to support the Cat engine; tomorrow it may be the Detroit Diesel or Cummins."
He believes this presented problems for both dealership salespeople and customers. "Your customers didn't get a feeling for what you support and they didn't get the feeling that you have their best interests in mind."
From the dealer's perspective, having multiple options does not allow the dealer to be prepared on the fixed operations side of the business, "to make sure your people are trained properly and that you have the right parts on the shelf," he said.
He added, "If you are out there selling everything under the sun, it is much more difficult to support it."
For Fyda, the alignment of OEMs and engine makers has been both positive and negative. "In some cases customers have come to us because they couldn't get the components they wanted and in some cases we've lost long-time customers because they could no longer get what they wanted in our trucks."
He believes this consolidation trend will continue and extend to other components as well. "Generally speaking, truck customers don't like it. They are used to having choices and they want to continue to have choices. On the other hand, they want to have an economical unit that is functional and doesn't break down. I wouldn't say those two things are mutually exclusive, but they can be somewhat exclusive."
In general, Fyda believes that when components are designed together, they work better together.
McCullough believes "it was just a matter of time before economics and global consolidation were going to force us into a standardized integrated-type product."
The cost of engineering has been the impetus for this, McCullough explained. "We've got engines that are better designed to be more of an integral part of the whole truck. And as a result, they're doing a better job as far as efficiency, reliability, dependability and performance."
He believes this opens the door for some customers who aren't loyal to a brand to look for a business solution to improve his operation.
And it positions the dealer to better meet the customers' needs, according to McCullough. "We can focus on a narrow range of products and be a better supplier of parts, service and expertise for those products."
The Role Of Training
As trucks continue to become more complex, staying abreast of technology, diagnosing and repairing them and being able to keep customers informed about the changes will become even more critical.
In order for dealers to successfully be able to accomplish these tasks, they must have well-trained people in all areas of the dealership.
"Training is an on-going, never-ending process," according to Cayce.
"Our products are changing so dramatically that it is a constant struggle to make sure everyone is trained."
He used the example of the upcoming changes that will result from the 2007 emissions-compliant engines. "There is going to be a substantial learning curve for each department. Our salespeople will need to understand what the changes are and what the impact will be so they can fairly represent them to our customers."
He continued, "Obviously our technicians need to be trained to know what to look for and how to diagnose the equipment properly. Our parts people will have to understand the changes so they can have the right parts information and be knowledgeable about the different parts so we can have them stocked properly."
From time to time, Dwyer will put on a training program for his dealership's customers. "We held a clutch and driveline component session and it was unbelievable. It was on a Wednesday night. We offered dinner in our shop and then the training." It sold out.
"People were here for two hours spellbound listening to information, trying to gather knowledge so they could go out and do a better job. There is a tremendous appetite for training."
Baker added, "Training is one of those things that someone once said, 'You pay for it whether you have it or not.' There is a lot of truth to that." Obviously having untrained technicians, salespeople and counterpeople will lead to lost business.
And customers may not be the only casualty of not investing in training. According to Fyda, training is a must for employee retention.
"When you look at technicians, they certainly want good, competitive pay, but they also want to be able to advance. Training is a big part of that."
What's Happening With Financing
One challenge dealers face is being able to secure financing for their customers. During the last downturn, many financing sources exited the trucking industry, making it difficult for dealers to finance some deals.
According to Fyda, "Through the '90s, it got to be very heated. It was kind of a feeding frenzy among finance companies and frankly they were financing people who should not have been financed."
However when the downturn hit, finance companies tightened their policies and "in many cases were gun shy, making it difficult to finance what we thought was good credit."
Fyda's reaction? Start his own finance company to fill the void that existed. His finance company is contributing to the dealership's bottom line profitability.
More recently "we have seen more realistic credit decisions in 2003 and that trend continues today," he said."
McCullough agreed that financing had gotten extremely restrictive and that it now is easing up. "We got in trouble in the past because financing was too easy and people who really weren't qualified were able to get financed.
"Now there is financing available for people with good credit and sometimes for those with marginal credit. Credit decisions now are based on more rational factors, such as the customer having some equity or some successful business experience or a decent credit rating."
Cayce has had to look for alternative financing sources "to allow us the best opportunity for providing financing to our customers. We are very much in support of our captive finance source, but we're also developing some other types of financing.
"One thing we can't do is provide a customer with only one option and say, 'This is it. We have to be more flexible because our competitors are providing more options. And I don't just mean the other new franchised truck dealer; it may be a leasing company that is a competitor."
Dealer of the Year nominee Robert Hoover, president Hoover Truck centers, Flanders, N.J,. also relies on captive finance sources as well as other lending institutions. "We can take someone who has been bankrupt and get him financed with some of our other sources. He has to pay higher interest and we have to work harder, but we can get it done."
Hoover has even been able to get his captive finance source to take some B and B- accounts. "Because I have such a good track record, I can go in and say, 'I think this guy is OK.' And they will go along with me."
Waters said it has been a challenge to find financing companies who will look at customers who made it through the recent downturn but perhaps have not shown great financial performance.
"My feeling is that most of the marginal customers didn't make it through the last downturn. Consequently, those who did have done the right things to survive. As business is turning better, our challenge is to get finance sources to look at these customers and what they have done to survive and recognize that with the economy looking better they need to be willing to extend credit to these people."
Truck Dealer of the Year: Mike Waters
