Trailer Sales Nosedive in ’08; Fleets ‘Just Aren’t Buying’

By Frederick Kiel, Staff Reporter

This story appears in the Sept. 8 print edition of Transport Topics.

Trailer makers say they are suffering through one of the largest downturns in their history — “the longest down-cycle” ever, said one executive — forcing layoffs, production cuts and a search for new products.

R.L. Polk & Co., which compiles U.S. vehicle registration data, said new-trailer registrations dropped 33.7% in the first six months of the year from the first half of 2007, itself a weak sales year.

“We’re down about 40% through September,” said Glenn Harney, Hyundai Translead’s chief operating officer, who estimated nine-month sales based on orders through August. “Dry vans are down about 45% and refrigerated vans 35%.”

Dave Gilliland, vice president of branch sales and operations of Great Dane Trailers, one of the two largest manufacturers, said his sales are down, though not as much as others.

“In the overall trailer market, the performance in 2008 is definitely lower than anybody expected, and it is probably as bad, or worse, than the 2001 slowdown,” Gilliland said. His reasons were similar to those of other original equipment manufacturers.

“I think simply that trucker profitability isn’t there,” Gilliland said. High fuel costs and low demand for freight hauling are cutting operation margins of fleets, he said, and dimming interest in acquiring trailers.

Polk said U.S. businesses registered 77,200 new pup and full-size trailers during the first six months of this year, compared with 116,500 during the first half of 2007.

Harney said fleets are hanging onto their trailers longer, “with over-the-road fleets extending from five years to six or seven years and less-than-truckload, probably twice that. Customers just aren’t buying.”

Brian Prall, a vice president for Stoughton Trailers, said he would not release his company’s sales figures, “but those numbers [from Polk] are not out of line,” he said.

Patrice Gillespie, Stoughton’s vice president of human resources, was blunter.

“This is the longest down cycle we’ve ever experienced,” Gillespie said. “I work and talk with people who’ve been in this business for more than 50 years, and no one has ever seen it this bad.”

Wabash National Corp., another top-two OEM, reported a net loss of $9.6 million, on sales of $362.5 million for the first six months of 2008. During the first half of last year, the company earned $6.9 million on sales of $553.7 million. It is the only publicly traded U.S. trailer OEM.

“The prolonged residential housing correction and macroeconomic and industry-related headwinds continued to impact carrier and trailer demand during the second quarter,” Dick Giromini, Wabash’s chief executive officer, told investors.

Utility Trailer Manufacturing Co., the third-largest trailer maker, according to Polk, is growing in relative size, said Craig Bennett, senior vice president.

“It’s a tight market; however, we’re increasing our market share this year to 16.5%, the highest in our history, and we’re building half the reefers in the country.”

All of the executives interviewed acknowledged that they have had to reduce employment and cut production this year.

Gillespie said Stoughton laid off 12% of its 700 employees and was “clearing more jobs by attrition, with a hiring freeze.”

Harney said Hyundai has had layoffs in the range of 25%.

Great Dane’s Gilliland said, “We have scaled back production to meet . . . the number of trailers built to orders. We have lowered overhead.”

OEMs also said they all have had to increase trailer prices during a sales decline because of soaring commodity prices.

On Aug. 28, Wabash said that it would increase its trailer prices 5% on orders booked after Sept. 30, with an additional increase of 3% to 5% on Jan. 1.

“The costs of raw materials and purchased components have been rising at unprecedented rates for the past few years and have continued throughout 2008,” Giromini said. “Steel costs have more than doubled this year alone, and aluminum is now projected to increase another 45% by year end.”

The problem of rising commodity costs pushing up trailer prices “will continue in the second half of this year, and we’ll be watching how successful trailer manufacturers will be in passing through higher material costs in a stagnant market,” Stoughton’s Prall said.

Some companies are trying new strategies.

Prall said Stoughton is returning to the production of grain trailers after a 25-year hiatus because the agricultural sector is doing better than the economy as a whole. He said the company has added about 15 new dealerships spread across the Corn Belt. Hyundai Translead is building up its automotive remanufacturing business.

“We already had a plant alongside our trailer factory, and this year we began to rebuild Hyundai and Kia engines,” Harney said. “We already did transmissions, and we’re looking at other automotive-related products.”

Strick Corp., which cut its dry van production to 100 units a month from 300, has begun marketing specialty trailers for smaller fleets that have a higher per-unit profit margin, marketing manager Ben Katz said.

“We’re building a new dealer network, moving away from large fleets to small ones,” Katz said.

No one interviewed said they expected a general turnaround in trailers anytime soon.

“Historically, two indicators for growth in the trailer market have been gross domestic product and housing starts, and until we see those measurements turning up, we’ll remain in a weak market,” Prall said.