All about confidence

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Peterbilt General Manager Nick Panza

Peterbilt Motors Company isn’t taking an expected drop in sales lying down. New engine technology has added $4,000 to $5,000 to the cost of a new Peterbilt, but the company is aggressively offering its customers opportunities to offset the pain. In recent weeks, the company has announced joint initiatives with suppliers to offer discounts on certain models, complimentary extended warranty on certain engines and transmissions and discounts on lighter-weight components like suspensions and wheels. We met with Peterbilt General Manager Mike Panza in early September in his Denton, Texas, office to discuss the pre-buy and prospects for the future.

CCJ: With the pre-buy essentially over, what are the near-term prospects for truck demand?
Panza: If you have been tracking the order intake in the past few months, obviously its declining from earlier this year. I think one month, net industry orders were close to 26,000. July was a little over 5,000, and we have probably reached the bottom. Obviously, we can’t sustain the industry at 5,000 trucks a month ordered. But I think as acceptance becomes the reality on the new engines, customers get a little more confident, people will need to buy trucks.

CCJ: You recently announced some initiatives – such as complimentary extended warranties on Cummins engines and certain Eaton transmissions – to nudge buyers along. What else are you doing to drive sales?
Panza: We are trying to help out by offering opportunities to help reduce weight, such as the special promotion for FLEX Air, our proprietary lightweight suspension. We certainly have the components available to the customer base to offset any weight increases there might be with the new engines.

CCJ: Weighing buyer’s hesitance on EGR against incentives and the need to renew fleets, how does 2003 look for sales?
Panza: When you look at this year, I think Class 8 retail sales in the United States and Canada will be about 160,000 to 165,000, which is a little better than last year. Some of that is the impact of the “pull forward.” That drove some sales up for this year, and as a result I think next year will level off and maybe even be on a slight decline. But it’s hard to forecast. The economy – and confidence in the economy – will be a critical factor. Consumers drive the economy, which drives freight movements, which drive our business. I’m more of an optimist than a pessimist. I think the economy – barring any major catastrophic issues in the world – will have a reasonably good year.

CCJ: How did the pre-buy demand compare to your expectations?
Panza: I would say that the demand exceeded what we had expected. I wouldn’t say that it extraordinarily exceeded it, but let’s put it this way: I think the supply base in our industry was stretched to the limit to meet the demand.

CCJ: You would also expect values of and demand for used trucks to pick up in a situation like this. Is Peterbilt seeing that?
Panza: Even forgetting any issues about performance or fuel economy, just the upfront cost of the new engines will drive a better resale value on the used. We are seeing that. Peterbilt used truck values are up 15 percent this year. They are going out as fast as they are coming in right now. We design our products – and I have said it over and over again – not just for the first user but for the second and third user as well. In fact, that’s how the first user gets extra value, making sure they can sell at a nice premium and strong residual value.

CCJ: What is the state of financing, especially for smaller operators?
Panza: Credit issues are still out there, but we have been hearing from our financing sources about some improvements, especially in the last 90 days or so. Repo activity has slowed. But it also could be that the market has shaken out and we’re down to the good-credit people.