Problems such as a glut of used trucks are merely speed bumps for truck dealers, who need to make sure they use technology and other springboards to be successful in the future, said Marc Gustafson, president and CEO of Volvo Trucks North America, during his keynote speech at the American Truck Dealers' annual meeting in San Antonio last weekend.
Gustafson said business is softening, dealer profitability is being squeezed, used trucks are piling up on the lot and it's getting more expensive to keep trucks on the lot that aren't selling.
Gustafson compared much of the current problems with a bull run in the stock market. "Typically, when we think of a bull market, we think about stock prices rising in response to a seemingly unabated, almost irrational, desire to buy," he said. "Clearly, 1997 through 1999 marked one of those time periods. … During that same period, our customers had an unabated, seemingly irrational, desire to buy new trucks, too. … we all know how much was said about the 'speculative bubble' in the stock market, yet little was said about the risks associated with our own bull run."
Now rising interest rates, high fuel prices and overproduction of new trucks is putting the brakes on the truck bull market, he said. To make matters worse, Gustafson said, some truck manufacturers continue to overproduce. "Every unit that we produce today as a stock truck is like borrowing against our future," he said. "This industry simply cannot afford to produce at a rate exceeding 120% of true retail demand."
Yet, Gustafson said, all is not doom and glom. "Despite these very real obstacles, they're just speed bumps in the road," he said. Volvo predicts that 238,000 heavy trucks will be retailed in North America this year. "Granted, that's far short of last year's 309,000 record-setting pace, but it is nonetheless a very strong year by any historical standard," he said.
He encouraged dealers to embrace technology in order to be successful in the future. The Internet, he said, is a source of opportunity for dealers as well as a source of competition to be considered. "The Internet is making parts pricing transparent and increasing customer accessibility to alternative sources of supply," he said. He said the truck sales industry should earn from events in the passenger car industry, where manufacturers and dealers have been jockeying for position, sometimes in the courts, over who controls the e-customer.
Another huge trend is consolidation. Gustafson foresees the development of several large "constellations" of manufacturers and service providers. It's vital for dealers and manufacturers to work together to prevent outsiders from "cherrypicking" the most profitable segment of the business, he said. These "constellations" will include truck makers and engine manufacturers aligning horizontally, he said, along with including other types of businesses such as truckstops, which Volvo has done with Petro Stopping Centers.
To succeed in the new economy, Gustafson said dealers need to work with their manufacturers to minimize pipeline expense, focus on serving customers better, look for tomorrow's customers, and embrace technology.
Finally, Gustafson said dealers need to take a good look at whose trucks they're selling. "Align yourself with OEMs who are assembling the most complete constellations .. trucks, engines, financing, service, aftermarket, used trucks, fuel, driver resources, etc. Constellations are the future of this business."
Recent Class 8 trade volumes have been lower than predicted, which means pricing has been more stable than expected for used trucks, according to J.D. Power & Associates.