Truck Sales Suffering Disastrous Start to 2001

The joke making the trucking industry rounds these days has an owner going to a bank to borrow money on his used truck. He asked the banker what his truck is worth. The banker asks, “How much gas you got in it?”

To many, it’s not a very funny joke.

Truck dealers are experiencing a nightmarish year in class “A” truck sales created perhaps because of their record sales years in 1998 and 2000. The industry sold about 280,000 class “A” trucks last year. Estimates for 2001 range anywhere from 120,000 to 125,000. If those estimates are accurate, it will be the fewest class “A” trucks sold since 1992.

Those numbers are leading to the demise of thousands of trucking fleets and truck dealers. During the fourth quarter of 2000, as many as 68 fleet companies per day lost their ICC license to operate. The majority of those were very small fleets, but some larger ones have also fallen by the wayside, and everyone has been affected.

Several small fleets in Northwest Arkansas have been forced to file bankruptcy, including most recently Rockwell Transportation Inc. of Gentry.

The problems stretch beyond Arkansas boundaries. OTR Express of Olathe, Kan., announced on May 9 it was ceasing operations due to “adverse business conditions.” OTR had $83 million in annual revenue.

There were 34 truck dealers selected nationwide to attend this year’s prestigious Dealer Candidate Academy in Virginia. Nine of those have already filed for bankruptcy.

Higher fuel prices, rising insurance rates and credit problems were blamed most often for the industry’s losses.

“I’ve only been in this industry about 10 years,” said Jeff Nelson, manager of Murphy Hoffman Co. in Springdale, formerly Ozark Truck Sales and headquartered in Kansas City. “but a lot of people I know who have been in it for 25-30 years have told me they’ve always had down times but never had anything like this. It’s amazing the amount of companies going out. Hopefully, we’ve hit bottom. But, with fuel [prices] going back up it’s gonna hurt them again.”

Merrill Lynch trucking analyst Jeffrey Kauffman said the bad times in the industry are likely to be followed by good times for those who can survive.

“I think the leading truck carriers are going to go through a couple of months of turbulence here but are actually going to come out of this fairly well,” Kauffman said.

Doug Col, a trucking analyst with Morgan Keegan Inc. in Memphis, said the larger truck fleets will likely weather the storm better than others.

“I don’t have any concerns about the public companies,” Col said. “They’ll see some reorganizations. They’re not immune to what’s going on, but I don’t think the best of class will have any worries about going out of business.”

The trend for 2001 looks more like a perfect storm. In the first quarter of this year, sales were 41 percent below the 2000 figure. And that trend is accelerating. March’s totals were 47 percent below the 2000 number.

The glut of trucks on the road is doing to the trucking industry what the meat glut is doing to the meat companies. Tyson Foods Inc. just experienced its worse financial quarter in 20 years.

However, the companies that survived the lack of sales also have been able to keep their prices relatively steady.

“The soft freight environment pricing has remained pretty firm,” Col said. “If freight is soft and the prices are OK, then capacity must be leaving the industry. When you look at the pricing, you know it must be happening.”

Fuel prices are rising to new highs, too — another factor that has hit the fleet companies hard in the last year. And now insurance costs have almost doubled. Some smaller companies are asking, ‘Why fight it?’ since a truck with a $40,000 bank note may actually be worth no more than $25,000. The companies that are buying new trucks are not planning for the future, rather they are getting just what they need for the moment. In some cases, it is cheaper for the company to park a truck than to operate it.

Northwest Arkansas has an abundance of truck fleets with the likes of J.B. Hunt Transport Services Inc., P.A.M. Transportation Services Inc., USA Truck Inc., Arkansas Best Corp., Willis Shaw Express Inc., Cannon Express Inc., Wal-Mart Stores Inc. and Tyson Foods Inc., and there is an abundance of truck dealers, too.

“There are trucks sitting around everywhere,” Nelson said. “Where we’ve felt the crunch is that with all of the companies getting out, everyone wants a piece of the big guys.”

Many of the top truck salesmen are bolting out of the business.

And when the finance companies are calling about past due notes, some companies just tell them to come and get it.

“A lot of people, from the guy who gets his truck repossessed to the guy that has 10 drivers working for him, have decided there must be an easier way of making a living,” Col said. “They’re facing a situation where the used equipment they own — where once they could go to the bank and borrow off of it — is not worth as much. And with licenses and registration costing anywhere from $3,000 to $6,000 per year to run it, well, it’s tough. For those running small businesses, it’s not like they have a choice in some cases.”