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The Uneven State of the Truck Equipment Market

The automotive industry looms large in Michigan, but it is not the only vehicular game in town.

The automotive industry looms large in Michigan, but it is not the only vehicular game in town. How has the truck market been faring while so much attention has been on the auto bailout and its results? We recently attended the National Truck Equipment Association’s (NTEA’s) Work Truck Show in Indianapolis and had an opportunity to see how things look in the world of commercial vehicles. There is plenty of truck equipment that has no counterpart in consumer vehicles, ranging from OEM chassis (e.g., Ford, GM) to truck and van bodies to roll-up doors, snow plows and more.

The last great years in this industry were the 2006-2007 time frame, when NTEA pegged the peak at close to $130-billion in shipments of truck chassis, bodies, and related equipment. Three years later, in 2009, the comparable figure was $62-billion. Industry observers say that this industry experiences more volatility on both sides of the cycle than the macroeconomy does.

The truck equipment market has been strengthening gradually since 2009. The NTEA reported work truck industry shipments of $93.5-billion in 2011 and is forecasting in excess of $110-billion for 2012. Visitors to the trade show were decidedly more upbeat this year, but the applications of work trucks are so diverse, there are many different tales to tell within this one sector of the economy.

Some companies are at the mercy of trailing market segments. Companies serving the construction market, for example, fell hard and are recovering slowly. Representatives at one booth told us that in 2008, it was like someone turned off the faucet. 2007 was a big year as truck operators rushed to buy vehicles ahead of new emissions regulations; both the U.S. economic downturn and after effects of the pre-buying had a big impact. This company follows the classic business advice to “stick to the knitting” in focusing its resources on tarp systems for dump trucks, but that strategy means that it is difficult to outperform the market conditions. And speaking of conditions, the makers of equipment for snow removal had plenty of complaints about the weather this past winter. They hope the standard replacement cycles of municipalities will drive sales even if lack of snow dampens growth.

The automotive market, for all its challenges, offers some very attractive characteristics in comparison to the commercial vehicle industry. The high unit volumes for light vehicles allow for highly efficient operations and profitability even when parts are priced in cents and not dollars. In the truck equipment market, by contrast, market segments might consist of 15,000 units a year, or 45,000, or potentially up to 250,000, but no one is producing millions of parts. A $1,500-component might be beyond the reach of many auto suppliers, but in the truck equipment field even that does not necessarily yield a substantial market. Automotive suppliers that have ventured into some of these segments also find that the seasonality of sales can be difficult to schedule for, having to organize production around a market that requires all its units in the spring, like certain off-road or agriculture-related segments.

Truck equipment association personnel advised the Work Truck Show conference attendees that the economic indicators suggest the next cyclical downturn for the truck equipment industry will occur in 2016 or beyond. That gives participants in the work truck market four years or so to maximize sales and profitability, and build in flexibility to their cost structures. Based on our observation, many of these companies could benefit from the best practices of their automotive cousins. As IRN’s annual surveys of the automotive supplier population have shown, companies were driven into making dramatic changes in their cost structure during the 2009-2010 downturn. In the survey report published December 2011, 46% of the respondents said they had been able to retain at least half of those cost improvements. Responding to pain and coming out healthier is a hallmark of the successful automotive supplier, and participation in the auto industry is worth the effort. For members of the truck equipment community, using lessons learned from the automotive industry will help with the uneven recovery and ongoing cyclicality that they face, as well.

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