“As expected, continued weak truck and aftermarket sales caused the second quarter to be [our] most challenging operating period since this downturn began in 2007.” –W. Marvin Rush, chairman of Rush Enterprises, from the company's second quarter earnings report
We’ve all seen the numbers by now, so W. Marvin Rush’s comment above shouldn’t come as much of a surprise. Indeed, the Rush family – long a maverick in the truck sales industry – continues to batten down the hatches in the face of probably the worst trucking market in a very long time. Yet they, like everyone else, know that this grim time, too, shall pass – and they plan to be ready to roll when better days return.
Right now, though, those better days seem a long ways off. I talked to Eric Starks (at right), president of research firm FTR Associates, about his company’s take on what the sales picture for Class 8 models is going to look like for next year … and it wasn’t pretty, to say the least. In fact, his firm is lowering its sales projections for Class 8s in 2010 from 151,000 units down to 133,000 units – a 12% decline – as demand for truck freight transport is still declining and won’t bottom out until the fourth quarter.
“On top of that, we still have a lot of idle and under-used equipment out there, so while it may be old in terms of years, it’s useful life is still quite high,” Starks told me. “From where I sit, we think there’s at least a year or two years worth of useful life left in much of that under-used capacity out there, so there won’t be this pressure to go out and replace it with new units.”
Not exactly what you would call reassuring, especially for the folks that build and sell commercial trucks for a living.
The Rush family is one of those that sell trucks for a living, and that’ve done it successfully for a long, long time now. It’s been my good fortune to meet them face-to-face on more than one occasion – both Marvin and his son W. M. “Rusty” Rush (seen here below), president and CEO of Rush Enterprises – and I can tell you nothing much fazes these rangy Texans.
That being said, though, they are knuckling down to get through these lean times. Rusty noted in the company’s second quarter earnings report that forecasts for 2009 U.S. retail sales of Class 8 trucks got lowered to 93,000 units, down 19% from the first quarter’s forecast and some 33% down over 2008.
“We believe 2009 sales of Class 8 units will be in the range of 90,000 to 100,000 units, with U.S. retail sales of medium-duty trucks also forecasted to be down as much as 35% compared to 2008,” he said. “With U.S. Class 8 retail sales forecast now below 100,000 units, we expect this will continue to be one of the weakest markets since 1983.”
Still, Rusty believes the industry is at or near the bottom of this cycle, though – given the still ongoing economic uncertainly in the U.S., much less the world – it is virtually impossible to predict with confidence when this cycle will end.
“We have experienced a slight increase in new truck orders scheduled for delivery later in the year, primarily from large fleets looking to replace aged inventory prior to the impending 2010 diesel emissions regulations,” Rusty said. “But we expect overall new and used truck sales, as well as aftermarket operations, to remain sluggish through the remainder of 2009.”
He noted the company’s truck segment – it operates one of the largest dealership networks in the U.S., as well as for GMC medium-duty trucks, until General Motors shut that business down – recorded revenues of $298 million in the second quarter of 2009, compared to $425.2 million in the second quarter of 2008.
Rush delivered 954 new heavy-duty trucks, 638 new medium-duty trucks and 776 used trucks during the second quarter of 2009, compared to 1,665 new heavy-duty trucks, 979 new medium-duty trucks and 795 used trucks in the second quarter of 2008. Parts, service and body shop sales revenue was $95.8 million in the second quarter of 2009, compared to $111.9 million in the second quarter of 2008.
“The extended recession continued to impact aftermarket operations throughout the second quarter of 2009 as Rush Truck Centers’ parts, service and body shop revenues decreased 16.6% and gross profit decreased 21.4%, compared to the second quarter of 2008,” Rusty noted. “Through continued expense management, we were able to soften the impact that this sharp decline in aftermarket gross profit had on our absorption rate. Despite the 21.4% decline in gross profit, our absorption rate only declined 10.2%, from 105.4% in the second quarter of 2008 to 95.2% in the second quarter of 2009.”
Things no doubt will remain tough for a stretch for Rush – the company had to take a $4.9 million pre-tax impairment charge to wind-down its GMC dealership agreements in the second quarter, leading to a $1.5 million loss – but they, as I suspect most truck dealers are doing these days, are tightening the belts and preparing to soldier on.
“I remain very confident in our people and their ability to weather this extended downturn,” Said Rusty Rush. “Their continued execution will keep us well-positioned for growth when the economy rebounds.”
Let’s just hope that rebound comes sooner rather than later.