Revenue fluctuates because companies pre-buy to avoid stricter EPA regulations
Los Angeles, CA (PRWEB) December 03, 2012
Over the five years to 2012, revenue for the Truck Dealers industry is expected to fall at an annualized rate of 1.1% to roughly $93.5 billion. “A majority of the industry's losses came before the past five years, however, because the Environmental Protection Agency (EPA) proposed new emissions legislative standards for all 2007 model year trucks,” says IBISWorld industry analyst Antonio Danova. These regulations put pressure on truck manufacturers, increasing the cost of production on new vehicles, a cost that would ultimately flow through to retail shops and downstream consumers. To evade price hikes on new trucks, many freight companies engaged in heavy pre-buy activity prior to 2007, causing the market to become saturated. With little demand for new trucks after this trend, the industry endured a revenue loss of 25.9% during 2007 alone.
To compound the effects of pre-buy activity on the industry, demand for new trucks dropped further through 2008 and 2009 as the recession took its toll on the entire US economy. According to Danova, “Downstream customers, particularly freight trucking companies, chose to exhaust the useful life on their existing vehicle fleet rather than incurring the costs of upgrading to or adding new trucks.” As a result, new truck sales, which account for 60.0% of revenue for the average truck dealer, continued to fall sharply. This trend, along with the higher vehicle cost as a result of EPA-mandated regulations, eroded profitability throughout the industry as the average industry profit margin fell from about 6.2% of revenue in 2007 to roughly 5.0% in 2012. As the economy gained steam in 2010 and 2011, though, truck dealers benefited from trucking companies unleashing pent-up demand for new truck purchases they delayed during the downturn.
The Truck Dealers industry is highly fragmented and has a low level of market share concentration. In 2012, there are no industry players that will generate over 5.0% of industry revenue. The low concentration level reflects the larger number of nonemployers operating within the industry and the industry's high level of competition. Over the five years to 2012, the number of industry firms is expected to remain flat, decreasing at an annualized rate of 0.2% to an estimated 2,361.
Truck dealers are continuing to gain from pent-up demand as more trucking companies upgrade or replace their aging vehicles. In addition to this pent-up demand, though, truck dealers will also soon benefit from further pre-buy activity as the EPA implements greenhouse gas emissions and fuel economy standards for the 2014 model year. Growth will be swift and immediate for the industry, as revenue is expected to grow 5.5% during 2012 alone. In the long run, however, vehicle sales may taper off as the market again reaches saturation and demand tempers. Nonetheless, IBISWorld still expects the industry to return on a path toward growth, as revenue is expected to climb over the five years to 2017.
For more information, visit IBISWorld’s Truck Dealers in the US industry report page.
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IBISWorld industry Report Key Topics
This industry is comprised of firms that sell new and used medium- and heavy- duty commercial trucks. In addition to new truck sales, many firms offer a wide variety of used trucks and new truck parts for sale. Many dealers also provide truck repair services. This industry does not include light truck or sport utility vehicle (SUV) dealers.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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