Volatile Market Conditions Continue to Affect Heavy-Duty
The best way to deal with the volatility in the heavy-duty industry is to have good data and a solid plan.
Episode 328: In these volatile times it is more important than ever to pay attention to the important things in your business rather than only focusing on the urgent day to day tasks. Being proactive and having a solid plan can be the difference between your business struggling or even failing during hard times or emerging from those hard times and being stronger than ever.
Our featured guest is Charles Bowles, Director of Commercial Truck OEM & Strategic Initiatives at Commercial Truck Trader. He discusses 4 things that are really affecting the trucking market right now; high interest rates, trade-in prices, low freight rates and tight credit. All of these factors are continuing to affect the volatility of the heavy-duty industry and must be navigated.
Links
- CommercialTruckTrader.com
- Episode 295 – Charles Talks Trucking Trends
- NTEA 2024 Report
- Watch the Video Version
Sponsors of this Episode
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Transcript of Episode
Jamie Irvine:
You are listening to The Heavy Duty Parts Report. I’m your host, Jamie Irvine, and this is the place where we have conversations that empower heavy-duty people.
Welcome to another edition of The Heavy Duty Parts Report. I’m your host, Jamie Irvine. When we look at what has occurred over the last few years in the trucking industry, we have seen continued volatility in the truck market, not just in the truck, but also in the parts side of the business.
Now, whether that has been supply and demand issues, economics, geopolitical issues, or also if we’re just looking at how integrating new technology is an ongoing challenge, the volatility in the industry has been something that everybody, whether you are at the manufacturing level, the distribution level, or the repair and service level, you’ve had to deal with that and seeing the trends can be very helpful.
If you have good quality data, this can help you, but there’s no guarantees because as the pandemic showed us, sometimes things come very quickly. They are unprecedented and there’s not a lot you can do to prepare for them.
Now, as I said, having good data and a solid plan will help you to navigate volatile market conditions, and I want you to pay careful attention in this week’s episode to the interview, which includes a link to a report that you can get access to that will give you some of this good quality data that we are talking about.
Now, if you’re on the front lines, you have a perspective that is centered on daily demands of your time. So for example, if you’re a driver, you need to think about where you’re going to go today and what the week is going to look like.
Repair technicians need to think about what’s in their bay, maybe what’s in the yard, and what might be coming over the next couple days. If you work on the parts counter, you’re just taking one request at a time, and so you’re sometimes on a minute by minute time horizon.
And if you’re an outside salesperson selling parts and service, you’ve got a plan for the day, you’ve also got a plan for the week, but you know that one text message or one phone call can change your plans pretty rapidly.
If you’re in a leadership position, your time horizon needs to be much longer, so you need to make sure that everyone in your organization has what they need to do their job today, but you also have to make sure that the strategic decisions being made on a daily, weekly, monthly, quarterly basis align with the long-term goals of the business. And you have to try to ensure that what you do today doesn’t hurt your ability to provide service to your customers tomorrow.
For many heavy duty business leaders, they have a good idea of where they want to go with their business, but oftentimes this is not in a documented plan, and they also are often subject to the urgent needs of the business as well, just like the frontline workers.
And so a lot of times urgent things get dealt with today and important things get pushed off to tomorrow and tomorrow never comes. And this is a real challenge for heavy-duty leaders in our industry. Now at the Heavy Duty Consulting Corporation.
We work with heavy-duty leaders all the time to try to help them to put these important things that may be not as urgent, but are just as important or arguably even more important at the forefront of their attention. We help them not only to develop a plan, but also to be an accountability partner to help them and their team to execute on the plan. Now, the plan that we help them develop is called a high involvement business plan.
We just call it HIP for short High Involvement Planning. This is a plan that explains to everybody, both inside the business and outside of the business, so think of that as employees and outsiders like financial institutions or investors.
It explains to everyone why the business exists, what it’s doing today, where it’s going, and what the business is going to look like when it’s done.
Now, this high involvement planning process that we go through, that we take our clients through, this is not like the academic business plans that you might’ve created in university on this end of the spectrum, it’s also far superior than something like the VTO that gets created in the EOS program, which is popular amongst a lot of heavy-duty parts businesses.
We really feel that our high involvement planning process is a cut above both of those types of business plans that are sometimes used.
So having this plan in place is essential because it’s going to help you to make critical decisions as the industry shifts and changes as illustrated by our conversation today with Charles Boyles from Commercial Truck Trader, it also helps you to stay away from what we call shiny object syndrome, where a lot of business owners start going down a pathway and then they get their attention gets drawn away by something else and it’s not in the plan.
And sometimes that can really split the resources of the company, so it helps with that as well. So if you need a high involvement business plan and you want to work with us, reach out with us today. You can do that in a couple of ways. Go to heavydutypartsreport.com. In the top menu, you can click on the consulting button.
If you’re listening on the podcast player of your choice, hit the pause button right now. Go to the show notes inside of your podcast player right at the top, you’ll see a link to text us. You can just text us that way. And it’s also very easy to get a hold of me on LinkedIn and book an appointment with me. So use any of those options whatever’s most convenient for you. Either way, we’d love to hear from you.
Now we’re going to take a quick break and when we get back from the break, we are going to share with you some valuable market insights that you very well might choose in your high involvement business plan.
And we’re going to also give you access to a report that you will be able to download and have access directly. So let’s take a quick break. We’ll be right back.
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We’re back from our break. Before the break, we were talking about the importance of having a good business plan in place to help you deal with volatility in the marketplace. Our guest today is going to give us some valuable market insights and you’re going to learn how to get access to that full report from 2024.
So let’s start the interview. My guest today is Charles Bowles, Director of Commercial Truck OEM and Strategic initiatives at Commercial Truck Trader Charles is a returning guest. He was first on the show in episode 295 where we talked about the consumer trends in the trucking industry.
If you’d like to go back and listen to that episode, we will include a link on the show notes on the website version of our podcast. Charles, welcome back to The Heavy Duty Parts Report. So glad to have you here.
Charles Bowles:
Jamie. Thank you so much. It’s a pleasure to be back, man – 279 episodes even six months ago. That’s incredible.
Jamie Irvine:
Yeah, we are now well into the three hundreds and it has been quite a journey. We just celebrated our five-year anniversary at the beginning of June, 2024, so that’s pretty cool.
Well, I’ll tell you one thing. There’s two groups of people that I couldn’t do this show without and one is the audience and two is guests like you. So we’ve got a lot to talk about. The NTEA published their 2024 spring commercial vehicle report on April 30th, 2024.
If you’d like to get a copy of that, you can go over to ntea.com/cvmarketreport. That link will be in the show notes so people will be able to get access to it. So we’ve got a lot to talk about. Charles, first off, I wanted to ask you, how have the dynamics of the market changed since that report was published?
Charles Bowles:
That is really a great question. Jamie, NTEA, S&P Global Mobility and Commercial Truck Trader have been working on these reports now. That was the third one to be published, and I don’t think any of us really saw or foresaw what was going to happen.
That report covered the last six months of 2023 and things have changed substantially. One of the biggest challenges back then continued to be the lack of inventory. There was still significant pent up demand driving sales, and this coupled with supply chain recovery in some cases made vehicles very scarce. Perhaps the biggest surprise right now is the ballooning inventory on dealer lots.
Generally dealers want around a 60 day supply of units, and at that time, dealers barely had a 30 day supply, so they were selling everything that they had move forward to right now. And it’s a completely different market. I don’t want to get too deep in the weeds, but I want to tell you by class basically what the day supply on dealer lots are averaging now Class four has over a 200 day supply of units on dealer lots.
Class five and six have well over a hundred. Class seven is nearly a hundred days and Class eight is about 75 days. These are enormous volumes of inventory on dealer lots now, and we don’t see the ballooning stopping anytime soon unless some changes are made.
Jamie Irvine:
So with this significant increase in day’s supply on dealer’s lots, what do you think are the underlying causes and where do you think we’re headed?
Charles Bowles:
That’s a really good question. I’m going to start off by first by talking about the impactful reasons that this is happening. One is the high interest rates. They’re clobbering many buyers, they just can’t afford the terms. We’ve also got the challenge of trade-ins, regardless of class trade-ins are often upside down right now due to low residual values.
Freight rates are still bouncing along the bottom and many owner operators are either giving up and just parking their units or selling them, and it’s sad to see because they just can’t afford to actually haul any freight. And finally, credit has become a really big issue for a lot of buyers. It is really tight right now.
Jamie Irvine:
So you talk about new units on the lot. Let’s talk a little bit about a couple other groups of vehicles. So we have used vehicles, let’s talk about that for a minute. And you talk about these used vehicles being upside down. What’s driving that?
Charles Bowles:
We’ve had an enormous increase in the supply of used vehicles entering the secondary market. You look at what happened with Yellow that put a ton of day cabs into the market.
You look at some other things like the low freight rates causing a lot of small owner operators to just bring these vehicles back in. And if you look at the auction market, and if you look at the wholesale market, the dynamics are basically the same.
We are seeing residual values at an incredibly low number right now. And really I think you and I have talked about this before, it’s not only hurting the value of used units, it’s also making it challenging for new units. And that’s why you’re seeing day supply rise on for new units as well, because the price of everything is just an incredible flux right now.
Jamie Irvine:
And the other group of vehicles I wanted to talk about is EVs. Are they having an impact at all?
Charles Bowles:
When we wrote that report, the spring report, we saw that there was a lack of adoption in the EV space. What we basically said was the early adopters have adopted and now it’s a real challenge.
So we looked at back then, I mean the day’s supplies were really growing for EVs. And what we’re seeing now is that they’ve continued to stall in sales. Municipalities adopted them, some of the last mile delivery companies did as well. But after that, we’re just not seeing demand from the commercial buyers.
And what we’ve seen is it’s becoming a real challenge for dealers. And I just came back from a franchise dealer meeting last week and I go to a number of these franchise dealer group meetings throughout the year, and dealers are just not happy with what they consider the imposition of EVs on them. It’s a really hard sell for them.
And the residual values on EVs are also upside down. So you couple that with the concerns about range anxiety, total cost of ownership. Remember, these vehicles are heavier, so they’re harder on brakes and tires and just the finding charging stations has just made it such that we’re not seeing the adoption that we thought to.
And here’s something that’s really frightening, Jamie, is that because of the guidelines and mandates that have been imposed by the federal government on the ratio of EVs to ICE vehicles sold at the manufacturer level, there may be a time starting right now where manufacturers are going to have to reduce their production of ICE vehicles in order to meet the ICE/EV ratios that the government has mandated.
And that’s a really challenging and scary place for the commercial segment right now.
Jamie Irvine:
When are we going to learn the lesson that you cannot mess with the free market? The free market is the best way to deal with all of these things, and when you mess with it, it never works out.
The history books prove that. And I think we’re seeing history being written in real time that, but that’s not the purpose of our conversation.
That’s a whole other conversation we could have later. Let’s talk about cross shopping behavior, specifically what you’re seeing in the data related to what people, let’s say are initially searching for and what they end up taking action on your site.
Charles Bowles:
And without going into any proprietary stuff, this is a really important bit of data that we capture. And this is not a plug for a Commercial Truck Trader, but just that we, we’ve got over 2 million monthly buyers coming to the site. So we capture an enormous amount of buyer behavior data.
But here’s the easy way to explain this, or I think it is, we capture what the first vehicle a specific buyer looks at, and then what are the other vehicles that they look at and do they come back to that first vehicle or do they stay on that first vehicle before they commit an action like leaving the site or generating a lead, or do they ultimately go to another vehicle before either leaving the site or generating a lead?
And from that, we can really determine how strong that make model combination is.
So for example, without saying any specific numbers, let’s just say that somebody comes to the site and is looking for a Ford Transit van, let’s say 70% of the time that’s also the last vehicle they look at before they initiate an action. But in 20% of the time, they go and look at a Sprinter or they go look at a Pro Master.
And so with that kind of data, then a manufacturer has a more accurate idea of how to target a specific group of buyers, their buyers. If Ford says, hey, I want to move that needle from 70% to 80%, then they can say, what I really need to do is focus my targeting and conquesting on Ram or on Sprinter, for instance.
So it’s very valuable information because it can show you a number of things. One other thing, if somebody goes to, let’s say, an E-transit, what percentage of those buyers actually then initiate an action towards buying an E-transit versus maybe leaking over to a Pro Master or a Sprint or an Econoline?
And with that information, marketing departments at these large manufacturers can say, I really need to focus my efforts on targeting this specific type of unit versus this specific type. And it’s really valuable and it is opened up a lot of eyes with manufacturers.
Jamie Irvine:
So sometimes people ask me, they say, you have a podcast called The Heavy Duty Parts Report. Why do you have these conversations about other aspects of the trucking industry?
And I think it’s really important for people in the parts business and the service side of the business to understand the trends because as you start to see the trends unfold, you can start to look forward and say, well, if that’s what’s happening at the truck sales part of the equation, what is it going to look like for parts and service a year out, two years out?
And I think with all the volatility, this kind of information is really good. So thank you very much for coming and sharing this with us. If you want people to just remember one thing from today’s conversation and how it’s going to impact them, what would that one thing be?
Charles Bowles:
I’m going to make it two and I’ll make it really quick. One is, The Heavy Duty Parts Report is an important part of our industry and the consulting work that y’all do is significant and impactful, and I would encourage anyone who has any needs at all to look to you guys.
So secondly is Commercial Truck Traders the largest commercial vehicle marketplace in the United States, and we drive results for dealers, upfitters, body manufacturers, and OEMs. Thank you, Jamie.
Jamie Irvine:
Charles, thank you so much. And I promise everyone that that was not planned. That was completely spontaneous, although now I feel like I owe Charles something, next time I see him maybe a beverage of some kind.
Charles Bowles:
Yes please. That’d be great.
Jamie Irvine:
You’ve been listening to The Heavy Duty Parts Report. I’m your host, Jamie Irvine. We’ve been speaking with Charles Bowles, Director of Commercial Truck, OEM, and Strategic Initiatives at Commercial Truck Trader to learn more about Commercial Truck Trader to see what they’ve got going on, head over to commercialtrucktrader.com as well.
Don’t forget we have the link in the show notes for the report that we’ve been talking about. Charles, thank you so much for being on The Heavy Duty Parts Report. I can’t wait to have you back on again.
Charles Bowles:
Thank you, my friend.
Jamie Irvine:
It was absolutely great to have Charles Bowles from Commercial Truck Trader back on the show, and make sure you go ahead and get access to that report, which the link is in the show notes. It’s time for that’s not heavy duty in this edition of That’s NOT Heavy Duty.
I wanted to ask you a question. Have you ever wondered how many trucking companies were closed in 2023? We know that last year there was a freight recession.
We heard a lot of reports of trucking companies going out of business. Are you curious about how many? Well, according to carrier.ok, nearly 88,000 trucking companies ceased their operations in 2023. In addition to that, alongside of them 8,000 freight brokerage companies went out of business.
Now, the reality is that many of these closures very well may have been unavoidable, but I would go out there on a limb and say that some of these businesses, they went out of business, but it probably was an avoidable situation.
Now, when you think about it, how many well-managed businesses that have access to good quality data, have a solid plan in place and the leadership is proactive instead of reactive, how many of those businesses do you think went or ceased operation in 2023?
Probably not that many. It’s not heavy-duty to follow the crowd, to get swept up in the highs and lows of the classic truckload cycle, or for that matter, the general cycle around the economy. All too often we see people who basically have this attitude, everything is awesome. The economy is roaring, it’s never going to end.
Let’s take all of our money, spend it on stupid things like overpriced equipment and gold toilet paper. Or the other extreme, everything is terrible, the economy is horrible, it’s never going to get better, let’s lay off all of our best people and let’s sell equipment that we’re underwater on.
You see, when you follow the highs and lows and you get swept away with that, that is exactly where you will lose the most. That’s when businesses go out of business. That’s when people make critical mistakes and they end up being in that terrible situation where they buy high and sell low, as it were.
So what’s heavy-duty is to approach things from a conservative perspective, to build contingency plans and to save resources when things are going well, because you know that this is all a cycle and that there is going to be tough times ahead. During tough times.
You take the appropriate steps to keep your business going, but at the same time, you don’t sacrifice everything because you also know that this is a cycle and times will improve in the future. So it is really important that when you make your decisions, you’re doing so in such a way that reduces the amount of risks that you’re exposed to.
You don’t overspend and you conserve resources for when they’re actually needed. That’s the heavy-duty way. And if you look at all the successful businesses that have been around for 10, 20, 50, a hundred years in heavy duty, they’ve mastered that, they have not.
And the ones who have gotten away from those core principles are the companies that have suffered the most, sometimes ceasing operation. We don’t want that to happen to you. So this brings our episode to a conclusion. I just wanted to let you know that this week I’m doing field work in South Carolina for a client.
We’re going to be out in the field talking to some customers, and then we’re also going to be delivering a high involvement business plan to the ownership of that company. If that is something that you want some help with, reach out to us. Also, if you haven’t yet, go over to heavydutypartsreport.com and follow the podcast.
Sign up to our weekly email. We just send one email a week. We’re not going to spam you with anything, and we just let you know what the new content is. If you like listening on the podcast player of your choice, hit the follow button. If it gives you the option for a review and a rating, we’d really appreciate that.
And if you watch the video version, make sure you hit the subscribe button to our YouTube channel. Thank you so much for listening to The Heavy Duty Parts Report, and as always, I want to encourage you to Be Heavy Duty.