Was There A Truck Sales Bubble? It’s Been Interesting Since Deregulation - So What’s Next?

Implications: As per the referenced article, new truck orders worldwide (not just in the US) are falling - signaling a global slowdown. The forecasting models are being updated because the financing wildcard was not traditionally seen as a big factor - but with what? Freight, Fuel and Financing are the intertwined issues that have contributed to the past swings - along with EU / US Government regulations. Are we heading into a new (old) era? Probably for some.

Analysis: In looking at past / current housing Bubble(s), the oil price Bubble(s), and credit Bubble(s), it begs the question. Is the 25+ year run of churning new trucks going to be looked back upon as another Bubble? Will we go back to a more traditional financing / trade model for the majority of the market? We can compare it to similar questions within the auto industry and aircraft industries, but I guess it depends on the definition of a Bubble.

Investor-speak-wise, some say a bubble is something like rapidly rising equity prices within a sector where some investors feel it is unfounded. In common-speak language for us in fly-over country, I think it is more about behavior that lasts long enough for people to accept it as a new reality - when a rational analysis would show that things are too good to be true. Kind of reminds us of the lead-up to the 2000 truck glut in some respects.

Many things changed starting over a year ago - especially with fuel prices and financing. It’s no secret that big-time player - the secretive GE Capital - tightened lending, has a liquidity problem, and are trying to liquidate equipment via stepped up auctions today. Trucking companies otherwise have traditionally had choices in cheap financing including big banks, local banks, OEM financiers and others. A driver in all of this was the pouring of money into all types of credit - with trucking financiers getting their share, too.

The major companies we are talking to say their credit is OK - and their buying plans are more tied to freight levels -  and slowing. OEM financiers like Paccar Financial, Daimler Credit, Volvo Credit, Caterpillar Credit, etc. have plenty of cash and are lending too, albeit with tighter standards and higher rates - up 200-300 basis points today over 6-months ago.

Credit is tough to impossible for those without stellar credit scores or with poor plans. This is an issue with smaller transport companies around the globe - the majority of the marketplace!.

The result are “stunned” truckmakers around the globe with cancelled orders, less quoting and layoffs -  Volvo laying off 1,400 workers in Belgium and Sweden, Paccar’s Kenworth Australia “sacking” a hundred (1/3 of last years build rate) and more elsewhere.  

Many of us saw this coming. It’s an opportunity for those with good parts and service chains, as operators are gearing up to keeping equipment longer. Many in the industry don’t realize that fleets used to keep their trucks for a decade or longer. Some never changed from the old “keep-em-forever” ways. Higher equipment prices, higher maintenance costs and higher interest rates (even if one can get any financing) may be changing the Bubble.

Was it a Bubble? It depends what the definition of “is” - I mean Bubble is! Time will tell, but…….