Tightening Belts, Looking Ahead

Truck dealer leaders comment on business in the wake of a stalled economy, skyrocketing diesel costs and the fact that many customers are avoiding buying trucks with the 2007-emissions engines.

Deborah Lockridge Senior Managing Editor

The Truck Dealer of the Year is selected annually by a team of judges at Indiana University Kelley School of Business. Candidates, who are nominated by their American Truck Dealer line representative or dealer association, are judged on excellence in business practices, industry contributions and community service.

The judges also select one Dealer of the Year Finalist, who will step in should the dealer of the year be unable to fulfill his duties. Those duties include meeting with Congressional leaders as spokesman for truck dealers, honorary membership on the ATD Committee and service as dealer-in-residence at Indiana University, where he addresses business school classes.

This year's Dealer of the Year is W. Marvin Rush, chairman of Rush Enterprises, New Braunfels, Texas. The Dealer of the Year Finalist is Oscar Horton, president of Sun State International Trucks, Tampa, Fla.

The Truck Dealer of the Year competition is co-sponsored by ATD and Heavy Duty Trucking magazine.

Tom Graddy recently had a customer change his mind three times in one day on whether to buy new equipment.

The customer, who runs a family fleet business, had been considering it, says Graddy, chairman and CEO of Vanguard Truck Centers in Atlanta. But in the morning, one of his sons came in and told him they'd lost a couple of loads. So the customer decided now might not be a good time to buy trucks. That afternoon, the son came in and said they had picked up some loads from another customer. So the customer changed his mind and decided he would make the investment after all.

"Then that afternoon he got his fuel bill and changed his mind again," Graddy says. "He told me that's not unusual, the emotional roller coaster they're on because of the economic situation."

New truck sales are down significantly for all the nominees. The heavy-duty, long-haul fleet and owner-operator business is down the most, thanks to the stalled economy, skyrocketing diesel costs and the fact that many of these customers are avoiding buying trucks with the 2007-emissions engines.

"Some small operators have parked their trucks," says John Hogan, dealer principal/owner of Crossroads Truck Solutions, Springfield, Ill. "They just can't afford to run at this point in time. They'll have to sometime; they'll have to re-negotiate their rates."

Kenny Doonan, president of Doonan Truck & Equipment of Wichita (Kan.) sells Peterbilts, traditionally a strong brand among owner-operators. "If the owner-operators today aren't tied into a major carrier that likes the owner-operator, or tied in with a major shipper to where they've got automatic fuel adjustment clauses, they're going to be a thing of the past. I hate to say that, but the margins just aren't there."

A few areas, however, are doing well, such as oil fields, refuse and municipal contracts, and those involved in the production of biofuels.

"We've tried to concentrate in the last number of years on our vocational business," says Marvin Rush, chairman of Texas-based Rush Enterprises. "There's always going to be garbage, there's always going to be oil field work - right now it's booming." That diversification - about 40-50 percent vocational - has allowed Rush to weather the current economic downturn much better than the one in 2000, when their business was 75 percent over-the-road.

Some fret that the incessant media coverage of an economic crisis may actually make things worse. "Our customer may say, 'I need four or five new trucks,' and then he picks up the Wall Street Journal and reads that business is going to be terrible for the next year and says, 'I better postpone that purchase,'" says Peter Scheler, CEO of Five Star International in Erie, Pa.


Turning Challenges into Opportunities

Overall, the dealer nominees are still profitable, thanks to strong parts and service businesses, paying close attention to keeping costs down, and focusing on used trucks and leasing operations.

Nearly every dealer mentioned the importance of a strong parts and service business to balance the cyclical nature of truck sales.

John Hogan is no stranger to crazy economic times. When he started Crossroads in 1981 as a Ford dealer development store, there was 20 percent inflation and 20 percent interest rates. "We built the business through our shop," he says. "When I opened up in 1981, I said our customers come first, and we're going to provide the best service anyone has ever had in this part of Illinois." That emphasis on service is continuing to serve him well through these uncertain times.

Doonan realized that with the '07 new emissions engines coming out, most of his owner-operator customers were keeping their older equipment. "So we gambled two years ago and added 10,000 square feet onto the service shop, which has increased our service business about 25 percent."

Gerald Chunn, partner of Texas-based Lonestar Truck Group, says the slow sales actually offer an opportunity for savvy dealers. "We think it's a good time to refocus, and really change and grow. Too often when business is so good - like it was in '05 and '06 and the first half of '07 for us - that you get to going so fast, it's often easy to forget the fundamentals and/or [forget to] focus on strategic work you really need to get done."

Bill McKenna, dealer principal of McKenna Truck Center, Des Moines, Iowa, had a similar comment: "When things are going very well and you're making a lot of sales, it can hide a lot of sins. When they're not, and you have to really start managing your business from a dollar standpoint, you really appreciate where your strengths are and try to capitalize those and minimize your weaknesses."

For Oscar Horton, president of Sun State International Trucks in Tampa, Fla., something he started doing when he first took over the dealership in 2000 helps pay off during both boom times and down times: educating employees on basic corporate financial concepts and keeping them up to speed on how the business is doing.

"When we came to Tampa, one of the things I discovered is that the employees really didn't understand what was happening at the dealership. There was a basic misunderstanding about a dealership and its profitability. So we embarked on a program to make sure all our employees understand the basics of business - things like gross margins and sales and revenue vs. profits." During this down market, this makes it much easier to have discussions about productivity and cutting costs, he says.

Dealers also say customer service is more important than ever right now.

"We are finding that in this time of a business period, when things are tighter, this is when we need to be better at customer service," Horton says, "because our customers are really looking for someone to help them through the crunch. So we really focus on one-stop shopping. We have gone out to a number of fleets and told them, here's how we can help you."

Indeed, dealers can be a valuable partner to fleets, says Ray Mason, president of Columbus Truck & Equipment, Columbus, Ohio - but sometimes customers don't take advantage of it. "Sometimes they get the attitude that we're against them somehow," he says. "We don't have a magic wand to fix these problems. If I had one, I'd wave it. But if we all work together we could get the difficulties worked out."