A looming crisis in used trucks could have a negative impact on the entire trucking industry, according to Freightliner president and CEO Jim Hebe.
Speaking to truck industry press at Freightliner's Portland headquarters yesterday, Hebe said new trucks were oversold last year, leading to rising used truck inventories and the prospect of rapidly depreciating used truck values.
Many fleets will face enormous financial pressure because of it, Hebe predicted. "This is a much bigger issue than rising fuel prices and driver pay," he said. If finance companies do what they want to do to used truck values, around two thirds of fleets will be upside down with their equipment. They will owe more than the equipment is worth. And if we go back to longer trade cycles, all the things that made the industry efficient over the past 10 years will reverse themselves."
Hebe said a number of factors had led to the current situation. "We put too many people in new trucks that should have been buying used trucks. The practice of buying with no money down is not a sound one. Fleets have also been giving too many incentives to drivers to buy trucks."
Hebe called on truck makers to "plug leaks in the system." "When finance companies and independents dump large volumes of used trucks on the market, it impacts everyone. We all have a responsibility for making sure that doesn't happen," he said.
Hebe blamed overbuying in 1999 on fleet's miscalculations of anticipated growth. They were reacting to a burst in demand," he said. Many thought they would grow 20 to 30 percent. But it didn't happen. If every truck out there now had a driver in it, we would have a productivity decrease of around 10%. The industry would have been better off with 220,000 Class 8 sales instead of the 260,000 we had."
Based on current order rates, Hebe predicts Class 8 sales will drop to 216,000 this year, 208,000 in 2001, and jump back to 225,000 in 2002.
Net industry orders for Class 8 reached a two-year low in December and the cancellation rate had reached over 35% of net orders. The total industry backlog is now at around 180,000 units.
Hebe said rate increases hold the key for the health of the industry. "Every problem could be solved if carriers were given more money," he said. "If the economy stays the same driver pay will need to be doubled to make a difference to the driver shortage."
Rising interest rates also spell trouble, said Hebe. "A carrier with a floating loan has had almost a one percent rate increase over the past year. That's a big hit."