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Trouble ahead

24th November 2011
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Which of the following most accurately describes the problem?

Truck sales, profit margins, the banks, and the threat of Euro-6: Texaco’s latest state of the nation report, produced by CM, reveals all

Words: Brian Weatherley

THE TEXACO UK Commercial Vehicle Operator Report 2011, produced by CM and sister title Motor Transport, provides a fascinating insight into the health and eficiency of the nation’s truck operators, not least the relationship some have with their banks!

Economists looking for a reliable bellwether of Britain’s industrial fortunes should ask the nation’s transport companies this simple question: “Are you planning to buy any new trucks?” If the answer is “no”, it’s probably because their customers haven’t got anything to go on the back of them. And all the while manufacturers, retailers, homebuilders and consumers are still worrying about the economic future – the last thing the average haulier needs is a new truck.

Despite the news that Britain’s GDP grew by 0.5% in the third quarter, right now Britain’s truck operators are reluctant to invest in new vehicles judging by the latest Texaco report. Now in its second year, the report is based on feedback from 500 UK CV leet opera tors running ive or more trucks. Collectively, these operators deploy a total of 58,290 trucks with an average of 116 trucks per leet between them.

Wanna buy a truck?

Clearly, in the short-term at least, Britain’s hauliers see more troubled times ahead. The 500 companies were asked how many new vehicles they expect to purchase over the coming 12 months: the average number given was down from 17 in 2010 to just 13. The sto ry’s much the same for contracthire or leased vehicles, or moves to extend existing contract hire or leasing agreements.

Ironically, when Texaco’s researchers asked the same question in 2010, on average the 500 operators expected to purchase only seven new trucks. Yet many of them clearly changed their minds as the average number of new vehicles actually purchased during the past 12 months was higher (see below).

So was their change of heart prompted by a rise in business activity in 2011? More likely the under-predicting of new truck acquisitions can be explained by the industry’s legendary (and understandable) focus on shortterm events with a consequent unwillingness to commit to new acquisitions in the face of the current recession.

However, in 12 months’ time it will be interesting to see if, once again, UK companies have exceeded their leet purchase plans – and if the growing reliability of vehicles encourages them to replace their trucks less frequently too, consequently increasing the average age of the UK truck parc and reversing the recent trend towards younger leets. But however many new trucks are bought over the next 12 months, reliability, price and fuel consumption still remain the most important buying criteria for operators – no change from last year’s Texaco report.

Falling profits

If the operating margins reported by the 500 companies are anything to go by, truck manufacturers are in for a lean time, sales-wise – the graph above puts the current world of road transport proitability into stark perspective. Right now every truck operator is feeling the pinch, with the medium-sized (26-50 vehicles) leets being squeezed as much, if not worse, than their smaller and larger counterparts (see above).

Yet, drilling down into the data reveals some interesting facts. While the percentage of operators recording a ‘slight deterioration’ in their operating margins was greater in the medium-sized sector, the total number of medium-sized leets experiencing a ‘signiicant deterioration’ in their operating margins was actually less than in either the smaller or larger leets.

Moreover, the biggest response to the question “have you seen operating margins improve ‘signiicantly’?” came from the 26-50 vehicle leets, providing yet more evidence of the long-term viability of the nation’s medium-sized leets – a group frequently written-off by industry pundits. Indeed, the strength of many middle-sized leets is underpinned throughout this year’s report.

The banking question

Given the very nature of road transport – did someone mention late payment? – operators don’t always have an easy relationship with their bank. However, while politicians and industry bodies continue to berate the high-street banks for cutting back on their lending (a charge vigorously disputed by the banks themselves), of the 500 companies surveyed by Texaco, 45% (almost half) declared their bank was being either ‘quite supportive’ or ‘very supportive’ (see right). Moreover, 18% of those companies surveyed didn’t actually want any support! Indeed, only 11% felt they weren’t getting enough support from their banks.

The way the banks treat different-sized leets provides even more surprises. The companies expressing the most satisfaction with their bank, in terms of support, were in the 5-25 vehicle group – one you would imagine would be under more iscal pressure (not least from the banks) than larger hauliers. Removing the ‘don’t knows’ and the ‘don’t need’ replies shows that 81% of those who responded positively are in that 5-25 leet group.

Signiicantly, the largest number of companies claiming to need no help or support from their bank was in the 26-50 vehicle leets. Cynics might put that relatively high response down to an understandable reaction to the archetypal sign on the bank manager’s door, “please do not ask for credit as refusal may cause offence” . The inancial independence of those medium-sized leets surveyed is certainly noteworthy, even if many companies in that particular sector, and indeed other sizeleets, are still waiting for their bank to unlock inance.

DIY maintenance

While the number of new vehicles being acquired with full repair and maintenance packages continues to grow – not least as vehicles become increasingly sophisticated – more than half of all the companies surveyed are still doing their own in-house maintenance, not least to keep down costs.

However, some leets are clearly better at sweating their workshop assets through providing vehicle servicing to external customers (see below). When the 500 companies were asked ‘do you carry out maintenance for other third parties?’, the largest number of companies responding positively were in the 26-50 leet group. The story was much the same when using IT to monitor the condition of the vehicles and boost their overall business eficiency, suggesting there’s a ‘smart’ group of mid-sized leets in the industry.

Euro-6 knowledge gap

Delving into the data in the Texaco report also reveals an impressive uptake of low-emission trucks among the 500 surveyed companies – and how! For once, the UK appears to be positively out of step with the rest of Europe: just 17% said they operate vehicles at Euro-3 or worse; half said they operate at Euro-4; while another 32% are at Euro-5 (see below).

If the number of Euro-4 and Euro-5 models (82%) within the 58,290 trucks run by the 500 surveyed companies was indicative of the UK truck parc as a whole, then Britain’s HGV leet would be very green indeed! However, those ig ures latter to deceive. As the report’s survey sample deliberately excludes operators with four trucks or fewer, who typically run older vehicles, it’s doubtful that the high penetration of Euro-5 and Euro-4 trucks within the surveyed irms’ leets would be relected in the current UK truck parc.

Unfortunately, deining exactly how green the nation’s truck leet is in 2011 is hindered by the fact that the DVLA doesn’t list the engine Euro-certiicate status of every new truck chassis sold. However, notwithstanding that data deiciency, the large numbers of Euro-4 and Euro-5 vehicles within the leets surveyed by Texaco show an impressive collective effort by both truck manufacturers and operators to reduce emissions. And it should certainly give London Mayor Boris Johnson a warm glow, as from January 2012 Euro-4 becomes the minimum engine standard for free entry into the London Low Emission Zone.

Perhaps the most surprising feature within the report is the worrying level of general ignorance among UK operators of the forthcoming Euro-6 standard. Just 12% of all respondents actually knew when it is due to be implemented. While there may be an extension of the deadline for Euro-5 vehicles built late in 2013, all new trucks built and registered from 1 January 2014 must be Euro-6.

“Perhaps what surprised us most was the number of operators who have still to appreciate the impact of Euro-6 on their businesses. How, for example, will they deal with the biggest shift in CV technology in the past 20 years – and one that will have a profound effect on their operating costs and maintenance activities?” asks James Welchman, manager marketing, Chevron Lubricants Europe, which markets the Texaco brand. He adds: “Together with the truck manufacturers, we will be actively getting out more into the marketplace to help UK truck operators fully understand the effect that Euro-6 will have on their leets, not just in terms of maintaining new vehicles, but also explaining how to choose the best lubricants for mixed leets running both older and new trucks.”

The bottom line

Judging by the responses from the 500 companies surveyed in this year’s Texaco Report, next year will be as challenging, if not more so, than 2011, with fewer vehicles being purchased and operating margins squeezed even tighter.

However, it also questions some popular preconceptions, especially on inance. While no one doubts that many transport businesses are inding it hard to raise inance, not everyone is getting an unsympathetic response from their bank. Indeed, many small companies cite positive support.

Likewise, having been writtenoff many times by industry observers, it’s also clear there are some ‘smart’ mid-sized leets (26-50 vehicles) that appear to be achieving stronger operating margins and differentiating themselves from the rest through better use of their resources and more effective use of technology. But one challenge the industry will have to get to grips with over the coming year is to understand exactly what the greener world of Euro-6 will mean to their business – and how they should prepare for it. ■


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