Dealers told OEM and finance company representatives at the inaugural annual meeting of the Used Truck Assn. in Florida last week that they fear a further avalanche of truck repossessions in January when cash-strapped operators must pay annual license fees.
Dealers say they may have to shrink their operations to survive over the next two years.
Dealer inventory of used trucks is expected to rise to 320,000 by 2002, exceeding demand by as much as 80,000 before it begins to ease.
A number of ways to reduce the impact of the glut were suggested:
* Finance companies extending finance terms from the current four to five years to six or seven years to help small truck owners stay in business and reduce the number of repossessions.
* OEMs providing first-time buyer programs to help move more of the inventory already on dealer lots.
* The federal government reducing overall inventory by using money earmarked for foreign aid to buy excess trucks and send them overseas to needy countries.
* Working more closely with valuation guides to increase vehicle book values.
Finance company representatives told UTA delegates they will work with struggling operators to keep them solvent. They said it must be done on a case by case basis and they will give priority to those who have good credit and have done their best to make payments in the past.
But others warned that the higher cost of credit and loan servicing may also force them to raise their loan rates to potential buyers. Paul Heiss of Federal Assurance Corp., a company specializing in high-risk financing, said even his better debtors are defaulting. “In recent times, we’ve had a number of people who have paid like clockwork for 12 to 18 months and called us and said come pick up the truck, we’re through,” he said.
Heiss said his firm may need to increase its current loan rates of 25% to 28% to make up for increased loss rates and a higher cost of money. “Our loss rate could go from 8% to 12% and our cost of money has gone from 8% to 9.5%,” he said.
David Walker of Volvo Commercial Finance said the current used truck glut would not be solved by simply making it easier for small operators to buy a truck. “Financing a first-time buyer or extending credit terms without backing it up with other programs is like putting a gun to your head,” he said. “We have a big bucket of risk here. It should be shared. We shouldn’t just pass it from one to the other."
Dealers said they were worried that finance companies would be dumping a lot more repossessed trucks back into the market and selling them direct to end users at low prices. OEMs represented at the meeting say they have no intentions in going direct and bypassing dealers.
Dick Vulgamore, a regional director for Paccar Financial. said he gets a lot of calls from people looking for good deals direct. “They hang up when I refer them to a Kenworth or Peterbilt dealer,” he said.
Despite the huge challenges they face, the used truck dealers still managed to leave the meeting on a high note. “This industry has been damn good to a lot of us here,” said UTA president Steve “Bear” Nadolson. “A positive attitude will go a long way to helping us get through the tough times ahead. The first annual meeting of the UTA has been a great success and I’m excited about some of the things we can do as a united, growing group of dealers.”
The UTA currently has over 220 members and hopes to double that number by next year.