Month: December 2016

In 2017, the U.S. commercial truck market is expected to experience slow growth, according to Steve Latin-Kasper of the National Truck Equipment Association. Several factors, including the effects of other markets, low interest rates, and the overall slow growth of the U.S. economy, have influenced the market dynamics. Latin-Kasper predicts that the growth rate for commercial truck sales will remain below 10% throughout the year.

Commercial truck chassis and equipment sales had experienced consistent growth in 2015, with a notable 18.8% increase in the first quarter. However, the growth rate gradually slowed down in the second and third quarters, reaching only 4.6% and 2.3%, respectively. It picked up again in the fourth quarter, culminating in positive forecasts for 2016.

The quarterly growth rate pattern seen in 2015 seems to be repeating in 2016, with 10.3% growth in the first quarter and less than 5% growth in the second quarter. The deceleration persisted into the third quarter of 2016.

However, when analyzing the truck market segment variations, it becomes evident that Classes 4-7 experienced a much different story. This segment saw growth of approximately 16% through June 2016, indicating that sales in the medium-duty commercial chassis market were still on an upward trajectory.

The truck market’s performance in 2017 has been influenced by the varying growth rates in different truck application markets. For instance, the reduction in oil and gas market activity had a greater impact on Class 8 trucks compared to light- and medium-duty sales. Conversely, the rise in residential construction activity positively affected medium-duty sales.

One significant factor affecting commercial truck chassis and equipment sales has been the increase in light-duty pickup truck sales. As the same production lines are used for light-duty commercial truck chassis, higher pickup truck sales lead to fewer available commercial truck chassis for sale.

The labor market also played a crucial role in the work truck industry since 2015. To increase sales, production needs to be boosted, but a tight labor market limits overall economic growth. In turn, this affects fleet owners’ decisions to buy more tractors when they are unable to find available drivers. Likewise, truck body manufacturers are hesitant to increase production plans without sufficient skilled welders.

A shortage of skilled labor, particularly engineers, also hinders the implementation of factory automation to mitigate labor shortages. Rising salaries may attract more students to engineering programs in the long run, but this is not an immediate solution. The labor market imbalances are gradually being resolved, but this ongoing process results in slower economic growth.

Capacity utilization has become an issue for many industries, including the work truck industry. As the U.S. economy experiences its seventh consecutive year of expansion, the capacity utilization rate for U.S. manufacturers and the automotive sector has increased. The work truck industry is faced with the challenge of expanding current facilities or building new ones to meet demand, especially with the inaccessibility of skilled labor and necessary equipment.

Low interest rates have been a result of the Fed’s concerns about global economic issues. Some economists argue that the Fed needs to increase rates more frequently to address the aging cyclical expansion. They believe that the next recession, while not likely to occur in 2017 or 2018, will require higher rates to be effective monetary policy tools. Additionally, the prolonged period of near-zero interest rates has distorted stock and bond market valuations, leading businesses and consumers to have unrealistic expectations. Consistent, periodic interest rate increases may influence consumer spending more effectively and boost economic growth.

For the U.S. economy to grow at the historic norm of about 3%, consumption expenditures need to increase at a faster rate. Slow wage growth between 1984 and 2014 contributed to slow economic growth, but as the labor market tightened in 2015, wages began to rise, improving average family income. This has started to impact consumer confidence positively, leading to increased consumer spending. Continued gains in consumer spending are expected to drive capital expenditures in 2017.

Certain application markets are likely to provide growth opportunities for truck and truck equipment companies in 2017. These markets include construction, rental and lease, couriers, state and local government, and retail. Housing starts are still on the rise, indicating potential growth in nonresidential construction as well. State and local governments are expected to increase spending on trucks and truck equipment, and large fleet activity should see growth as well.

In conclusion, the U.S. commercial truck market is expected to experience slow growth in 2017, with the medium-duty market segment growing at a slower pace compared to 2016. The heavy-duty sector is forecasted to see gradual gains after a substantial slide in the previous year, while light-duty chassis sales are also anticipated to grow at a slow rate. The overall performance of the commercial truck market in 2017 will depend on various economic factors and market dynamics, shaping the prospects for the industry in the coming year.

The Equipment Finance industry is experiencing a surge in confidence following the 2016 elections, as indicated by the Equipment Leasing & Finance Foundation’s December 2016 Monthly Confidence Index. The index shows an impressive rise from 54.6 in November to 67.5 in December, reflecting the optimism expressed by equipment finance executives after the election.

David Normandin, managing director of the Commercial Finance Group of Hanmi Bank, expressed his positive outlook for the future, stating, “I am optimistic as the election cycle is finally behind us, and regardless of the side, people will begin to accept it and move forward. I also think an interest rate increase will be healthy, and I believe that we will see that happen this coming year.”

The survey also asked executives to assess their business conditions over the next four months. Results show that 48.4% of executives believe business conditions will improve during this period, a significant increase from the 13.8% who expressed the same sentiment in November. Furthermore, there was a notable decline of nearly 10% in respondents who believe business conditions will worsen.

According to Robert Boyer, president of Susquehanna Commercial Finance, the election results have already had a positive impact, fostering a more favorable business environment. He stated, “The anticipation of this has already had a positive impact and is beginning to shift the mindsets of business leaders and investors.” However, Boyer also expressed concerns about the potential negative impact of anticipated tax reforms on the industry.

Another noteworthy change is the significant rise in respondents who believe demand for leases and loans to fund capital expenditures will increase over the next four months, with 38.7% expressing this view, compared to just 13.8% in November.

When it comes to access to capital for equipment acquisitions, 22.6% of respondents expect increased access over the next four months, up from 13.8% in November. Notably, no respondents anticipate less access to capital, indicating growing confidence in the availability of funds.

William H. Besgen, senior advisor and vice chairman emeritus of Hitachi Capital America, is also optimistic about the future, stating, “I believe that with the election now over there will be a more stable and hopefully a more positive business environment, which will translate to an increase in financing opportunities.”

Additionally, 41.9% of executives expect to hire more employees over the next four months, showing a slight increase from 34.5% in November. Meanwhile, the number of those planning to hire fewer people only saw a marginal decrease from 10.3% to 9.7%.

While respondents are not entirely bullish on the U.S. economy, with all respondents evaluating the current conditions as fair, 71.0% of them believe that U.S. economic conditions will improve over the next six months. This marks a significant increase from the 17.2% who expressed similar sentiments in November.

Furthermore, 48.4% of respondents expect their companies to increase spending on business development activities during the next six months, up from 37.9% in November, indicating a growing focus on expanding business operations.

In conclusion, the Equipment Finance industry is experiencing a notable boost in confidence following the 2016 elections. Executives’ post-election optimism is driving positive changes in business outlook and spending plans. The anticipation of a more favorable business environment and increased access to capital are among the factors contributing to this optimistic trend. As the U.S. economy continues to show signs of improvement, the Equipment Finance industry appears poised for a period of growth and expansion in the coming months.

The construction market has experienced significant changes in recent years, with varying impacts on different players in the industry. While manufacturers, dealers, and rental companies have faced challenges, contractors have enjoyed what can be described as “the glory days.” In this blog post, we will explore the phenomenon of risk transference in the construction market and how it has created optimal conditions for contractors. From available work opportunities and favorable interest rates to efficient fleet management, contractors are now better positioned to thrive. Let’s delve into the details.

Available Work Opportunities for Contractors
Contractors are currently benefiting from an array of available work opportunities in the construction industry. Private construction, in particular, has witnessed sharp increases in spending since 2011. The U.S. Census Bureau reported that the total value of all construction put in place rose by 4.4% compared to the previous year. Private construction was the driving force behind this growth, with its value increasing by more than 6.8%.

Although there are pockets of weakness, such as in the oil and gas sector and certain state and local construction projects, overall, the construction market is showing signs of stability. This has allowed contractors to secure steady work, giving them the much-needed platform to thrive.

Favorable Interest Rates for Contractors
One of the critical factors contributing to the glory days for contractors is the historically low interest rates available to fund their businesses. Over the past decade, interest rates have significantly decreased, providing contractors with substantial savings when borrowing money for their projects.

For instance, the five-year treasury yield, which stood at 4.64% a decade ago, plummeted to just 1.01% in October 2011, and now hovers around 1.29%. As a result, contractors have enjoyed increased financial flexibility and saved thousands of dollars on interest payments, enabling them to reinvest in their businesses and drive growth.

Efficient Fleet Management for Contractors
The construction industry endured harsh lessons during the Great Recession, leading to significant changes in how contractors manage their equipment fleets. The economic collapse prompted contractors to reevaluate their fleet utilization and prioritize cost-effectiveness.

As a result, rental equipment became increasingly popular even before the recession, and its appeal has only grown over time. Contractors are now seeking options and flexibility when acquiring equipment, demanding that others share the economic risk associated with ownership. Equipment dealers and rental companies have responded to this demand, providing various rental and lease options to contractors.

By embracing these alternatives, contractors have effectively shifted a considerable portion of the burden and risk linked to equipment ownership to dealers and rental companies. As a result, contractors have experienced increased revenue, reduced overheads, lower leverage, and lower interest expenses, creating a more resilient business model.

Rental Market Challenges
While contractors have reaped the benefits of risk transference, rental companies are facing their own set of challenges. After years of fleet expansion, rental companies now have an excess of late-model equipment available, leading to intensified competition for rental utilization and downward pressure on rental rates. To mitigate this risk, rental companies are cautious about expanding or replacing their rental fleets, impacting sales volumes for manufacturers.

Moreover, equipment that was previously deployed in the energy industry has made its way into other sectors, further complicating the rental market dynamics. This situation is prompting rental companies and dealers to reevaluate their fleet management strategies and adapt to the changing market conditions.

In conclusion, the construction market’s landscape has been shaped by the transference of risk from end-users to dealers and rental companies, resulting in favorable conditions for contractors. With ample work opportunities, low interest rates, and efficient fleet management options, contractors are now better equipped to navigate market fluctuations and thrive.

As the construction industry continues to evolve, contractors, manufacturers, and dealers must stay vigilant and adapt to new challenges and opportunities. By embracing innovative strategies and maintaining a customer-centric focus, the industry can build on its current glory days and create a sustainable and prosperous future for all stakeholders.

The transportation finance industry experienced a mix of highs and lows in 2016, with excess capacity and economic uncertainty affecting sales. The trucking industry, in particular, faced challenges due to declining volumes and regulatory pressures. However, amidst these hurdles, there are indications of underlying strength and room for improvement in the upcoming year. In this blog post, we’ll delve into the current state of the trucking industry, exploring factors such as market performance, economic uncertainties, regulatory changes, and strategic partnerships that could shape the industry’s future.

Assessing the Current Market
2016 saw a decline of about 20% in the trucking market compared to the previous two years, primarily due to excess capacity resulting from record-setting sales in 2014 and 2015. The manufacturing and energy sectors faced weaknesses, leading to a drop in trucking volumes. However, there were some bright spots, with the construction and automotive sectors displaying relative strength and potential signs of growth in the consumer sector.

Economic Uncertainty
The uncertain economic climate has impacted the purchasing decisions of trucking companies. While businesses are willing to invest in replacements, expanding fleets remains a cautious endeavor until a clearer economic outlook emerges. Freight volume is low, and net trailer orders have been declining throughout the year. A lack of certainty surrounding political and interest rate environments further adds to this hesitancy, leading to a conservative approach to capital expenditure.

Steady Replacement Demand
Despite the cautious approach to fleet expansion, there is a healthy demand for replacement purchases. This trend is likely to continue through mid-2017, with a possibility of improvement in the second half of the year if the economy strengthens. To move beyond replacement demand, the industry needs more sectors to show consistent growth, especially those vital to segments like flatbed hauling.

Managing Costs and Risks
With slow growth limiting revenue potential, trucking companies are focusing on cost management and risk assessment. In the past, rapid expansion may have overshadowed these essential aspects of the business. By returning to the fundamentals and managing personnel costs, insurance, fuel expenses, and capital expenditures, operators can maintain stability during this period of uncertainty.

Regulatory Pressures
Regulatory changes, such as the implementation of electronic logging devices to ensure drivers comply with mandated hours of service, pose additional challenges to fleet operators. While safety initiatives are essential, these changes add costs when businesses are seeking to cut expenses. Moreover, limiting driver hours may hinder income potential and exacerbate the existing driver shortage issue.

Addressing the Driver Shortage
The trucking industry has been grappling with a driver shortage, a problem likely to worsen if not addressed proactively. The average age of truck drivers is higher than that of the overall U.S. workforce, and limited driving hours may deter younger drivers from entering the industry. Larger carriers with better capital structures might have an advantage over smaller fleets in implementing regulatory changes and attracting drivers.

A Glimpse of Hope: The VW-Navistar Alliance
A strategic partnership between Volkswagen AG and Navistar holds promise for the industry. The alliance not only provides financial stability to Navistar but also opens avenues for technological collaboration and access to European markets. Similarly, VW benefits from aligning with a trucking company with a significant North American footprint and access to Navistar’s dealer network, potentially leading to increased sales for both parties.

The trucking industry, despite facing challenges in 2016, remains in a healthy state with potential for improvement. While the first half of 2017 might see contraction, the second half holds the promise of a return to growth. Navigating the trucking industry during this period of uncertainty requires a focus on cost management, adherence to regulatory changes, and proactive measures to address the driver shortage. The strategic partnership between Volkswagen and Navistar could pave the way for positive developments in the industry. By staying attuned to market trends and adapting to changing circumstances, trucking companies can position themselves for success in the evolving landscape of the transportation finance industry.