Will glut grow through 2004?

Carriers that think the used truck glut is bad today might be surprised in a couple of years to find the situation far worse, according to a vice president of one of the nation’s leading truck financing companies.

Speaking at a Truckload Carriers Association Refrigerated Division meeting in Sonoma, Calif., last month, Kirk Mann of CitiCapital Transportation Finance predicted that the number of excess Class 8 trucks could grow by about 40,000 a year – from 87,000 in 2001 to 209,000 in 2004.

Although truck production certainly has exceeded demand before, there are several circumstances that make this period of glut worse than before, Mann said. In the past, trucking companies traded about as many trucks as they scrapped. That meant that the increased supply from trade-ins was largely matched by the increased demand from taking trucks out of the system altogether. But several years ago, first-time trades began exceeding scrappage by a growing margin, Mann said.

Although analysts point to the marketing strategies of individual truck manufacturers as the cause of the glut, Mann believes changes within the financing industry during the 1990s contributed significantly to the problem. Greater competition led to attractive terms that encouraged company drivers to become owner-operators. This led to a deepening shortage of company drivers that encouraged trucking companies to buy newer trucks as a way to compete.

The surplus of trucks grew quickly following trade-ins by fleets and owner-operators and by the failure of many owner-operators when fuel spiked and freight slowed. Moreover, the specs of fleet trucks traded generally made them unattractive to the secondary and export markets, which are the principal ways the market keeps glut under control.

Although the recovery for truck manufacturers may be long in coming, CitiCapital anticipates a “subdued” recovery for trucking companies after the first quarter of next year, Mann said. The recovery, which likely will begin with large fleets, will take time because lenders won’t be comfortable extending more credit until the industry sees more profitability, he said.

To underscore the point, a recent study by the Department of Transportation showed that sales of medium and heavy trucks were 23 percent lower in May 2001 compared to May 2000, while automotive sales were off only 2 percent. New orders for transportation equipment declined nearly 10 percent in April 2001 from the previous month. The report also showed that highway vehicle-miles declined nearly 1 percent in March 2001, compared with March 2000.