Transportation Outlook: Truck and Trailer Financing Trends
Executive Summary
- While the overall leasing and financing industry appears to be relatively strong, and even the transportation leasing and financing segment is looking good, the truck and trailer equipment sale markets are not, and this is negatively impacting the number of leases made and the financing for those leases.
- A surplus of vehicles stemming from the 2007 prebuy1 and weak demand for capacity is forcing even large fleets to scale back, and pushing smaller carriers out of business altogether. Soaring fuel prices and rising maintenance costs caused by aging fleets and new environmental regulations apply further pressure.
- Environmental regulations and rising fuel costs add uncertainty, causing companies to postpone capital spending decisions on new truck and trailer equipment. Diminishing profit margins are leading companies towards full service leases and complete fleet management solutions in order to squeeze out every possible additional efficiency.
- Used truck markets remain strong due primarily to exports. As a result, residual positions have not suffered as much as they could have, however, trailer valuations which do not receive the benefits of the export markets, are very low. Despite this, threats to the continued strength of the export market for trucks pose a considerable risk.
- While the leasing and financing industry avoided the errors and arrogance of the subprime mortgage industry and its subsequent collapse, thereby maintaining access to funding, tightening credit standards and lower tolerance for risk is preventing many companies from being able to expand their fleets. Many parent companies have been significantly impacted by the subprime problems, which are having a dramatic effect on the availability of capital, thus impacting the equipment finance market.
- Forecasts for overall GDP growth over the next couple of years are low, with threats of stagflation and continued high oil prices. Late 2009 and 2010 are expected to bring restored growth.
- Of the industries considered key to the truck and trailer market, a combination of the housing halt, rising fuel, food, and other commodity prices, and an overall weakening of the economy has harmed all of them with some exceptions: non-oil mining, the energy industries, and agriculture. All of these industries are expected to pick up again in 2010, and after the pre-buy payback is done, sales of trucks and trailers are expected to resume.
- Class 4-5 trucks, the demand for which is dominated by small business, are expected to see a decline in sales this year, a 3.3% pre-buy driven increase in 2009, followed by a 3.3% payback decrease in 2010. After that increases of about 10% are predicted, with a small decrease in 2013.
- Medium duty class 6 and 7 trucks are used primarily by for-hire and private carriers. A retail sale 15.1% fall in 2008 is expected, followed by a 7.4% pre-buying increase in 2009 and an 8.2% drop in 2010. Following 2010, increases of approximately 20% are anticipated and a slower 5.9% in 2013.
- Class 8 heavy truck sales are expected to fall 11.9% this year, with the hoped for pre-buying causing a 39.1% increase in 2009 and an 18.9% payback drop in 2010. 43.7% and 24.1% increases are expected, followed by a drop of 13.1% in 2013.
- The diversion of resources towards power-unit prebuying combined with less than robust economic conditions is expected to reduce trailer shipments by 28.2% this year, followed by a small 1.8% drop in 2009. 2010 and 2011 are expected to bring a surge of 33.3% and 19.0% respectively, falling to 6.1 and 2.3% growth in 2012 and 2013.
1Pre-buy refers to the purchase of vehicles prior to a new set of environmental regulations taking effect. More vehicles are purchased than would be normally, so that they can be grandfathered in and companies can avoid being 'testers' for new technology. Because the actual need for vehicles does not change, the pre-bought vehicles are essentially coming out of the demand for vehicles the year that the regulations take effect. As a result, sales after a pre-buy will be lower, and this is called the payback. back
Table of Contents:
- 3 PREFACE
- 3 PURPOSE OF THIS STUDY
- 3 PRIMARY AND SECONDARY SOURCES
- 4 EXECUTIVE SUMMARY
- 5 TRUCK AND TRAILER LEASING AND FINANCING TRENDS
- 5 CURRENT CONDITIONS
- 6 FLEET CHANGES
- 7 USED TRUCK MARKETS
- 9 RESIDUALS
- 10 CREDIT ISSUES
- 11 SUMMARY
- 12 MACROECONOMIC ENVIRONMENT
- 14 OUTLOOK FOR KEY TRUCK AND TRAILER BUYING MARKETS
- 14 FOR-HIRE CARRIERS
- 16 RETAILERS
- 17 WHOLESALERS & DISTRIBUTORS
- 17 CONSTRUCTION
- 18 MANUFACTURING
- 18 AGRICULTURE
- 19 ENERGY INDUSTRIES
- 20 NON-OIL MINING
- 20 LOGGING
- 20 SMALL BUSINESS
- 21 SERVICE INDUSTRIES
- 21 SPECIAL TRADE CONTRACTORS
- 21 STATE & LOCAL GOVERNMENT
- 22 THE OUTLOOK FOR CLASS 4-8 TRUCKS & COMPLETE TRAILERS
- 26 CLASS 4-5 SUMMARY
- 27 CLASS 6-7 SUMMARY
- 27 CLASS 8 SUMMARY
- 27 COMPLETE TRAILERS SUMMARY
- 28 CONCLUSION
- 29 APPENDIX