2017 Executive Leadership Summit delivered valuable content, strategy

This article was published in the December 2017 edition of NTEA News.

NTEA held its 2017 Executive Leadership Summit in October at Chicago Marriott O’Hare (Chicago, Illinois). Company executives gained perspective on economic and business trends, as subject matter experts discussed current and expected work truck industry dynamics. Five general and six concurrent sessions covered a market outlook, workforce development, global and political issues, strategic management, financial planning, and more.

Macroeconomic projections
NTEA’s Director of Market Data and Research Steve Latin-Kasper kicked off the Executive Leadership Summit by identifying U.S. economic expectations. During his presentation, he assessed many different sectors to inform the audience where the market stands and explain implications for companies in the vocational truck community.

Latin-Kasper said 2018 should be a strong year for U.S. commercial vehicle sales; the buying cycle is currently working in the industry’s favor. Fleet purchasing levels were high in 2010 and 2011. With a typical vehicle service life of about nine years, many fleets will start considering replacement options soon. Despite optimism in the short-term, the next recession is on the horizon, likely to take effect at some point in 2020. Latin-Kasper referred to several leading indicators that substantiate the upcoming U.S. downturn.

In overviewing the nation’s general landscape, he estimated year-end real gross domestic product (GDP) growth of 2.45 percent, followed by slight improvement next year. He cited the consumer expenditures level as one of the main reasons why the economy has been relatively slow, and noted the average hourly wage peaked more than 40 years ago and is just now approaching a return to previous highs. As income levels rise, consumer confidence and spending are improving. According to Latin-Kasper, credit availability is good, and interest and inflation rates are low — though both metrics are trending up. Attendees learned that overall U.S. nonfarm employment dipped due to Hurricanes Harvey and Irma, but the rebuilding effort should benefit the work truck industry.

Latin-Kasper emphasized the demographic shift in the U.S. workforce as the baby boomer generation approaches retirement age. As baby boomers exit the workforce (a process that began about five years ago), tremendous experience is leaving with them, and there aren’t as many employees lined up to replace them (the labor participation rate is falling). In describing the tight labor market, he pointed out these worker availability issues trigger capacity utilization limits. There’s no reason to build a new plant if there aren’t enough employees to fill it. He stated that, with monthly employment gains decelerating, companies may need to import labor elsewhere.

Regarding oil, Latin-Kasper shared prices aren’t really increasing much globally, but gas and diesel prices are rising in the U.S. With millions of newly created jobs, more people have been commuting to work and driving for recreational purposes. General demand is pushing prices up — a trend that will likely flatline. From roughly 2013 to the end of 2016, freight was growing at a very low rate, and diesel prices were falling. Though these two factors were enhancing profit margins, Latin-Kasper indicated they will tighten — at least for the next few years.

In the construction sector, he expects strong housing demand by millennials in 2018, and foresees an increased need for construction in the education realm (high school level and below). At this point, the public sector is the challenge: Given funding appropriation issues, difficulties abound for highway and street projects. Latin-Kasper commented that current political uncertainty adds to the complexity.

His data demonstrated U.S. heavy-duty sales are in a growth phase and will be moving toward another peak — likely in the next 18–24 months. For this segment (and several others), the next recession is expected to occur in 2020. In the immediate future, Classes 7–8 will probably experience the highest growth rate. Class 5 set sales records from 2014–2016 and already exceeded 2006 levels, so it will be tough for it to maintain the same pace. Referencing predictions from the National Oceanic and Atmospheric Administration, Latin-Kasper anticipates 2017–2018 will be a strong sales season for the snow and ice industry segment.

In Canada, the story is a bit more positive. Though the industry could slide a bit in 2018 in this region, growth is expected to continue in 2020 — a pattern that may extend for a few years thereafter.

Culturetopia
Jason Young, Culturetopia author, speaker and trainer, outlined a unique approach to creating and sustaining high performance in the workplace. Up front, he asked the audience to consider: “Are you operating out of scarcity or out of abundance?” Culturetopia is what Young means by operating out of abundance; this self-coined term simply describes a place marked by high performance and high fulfillment.

During his address, Young shared a model divided into four sections: low performance/low fulfillment; low performance/ high fulfillment; high performance/low fulfillment; and high performance/high fulfillment. A low performance/low fulfillment employee is generally uninspired and dissatisfied; and someone on the low performance/high fulfillment end of the spectrum is, essentially, content to underachieve. Young suggested many people can be categorized as high performance/low fulfillment; they’re getting the job done — but have lost their sense of passion.

When you’re functioning at the high performance/high fulfillment level, you’re operating with a sense of purpose. Attendees learned that the term inspire comes from a Latin word meaning “to breathe”; company leaders should breathe life into their employees, encouraging them to reach full potential. During his presentation, Young recounted success stories from his previous role as a senior-level manager at Southwest Airlines where employees transitioned into a high performance/high fulfillment state.

He referenced the term relational coordination, saying a spirit of teamwork is essential to performance. Young described two forces that can work against each other — performance tension (i.e., deadlines and budgets) and people tension. Citing an in-depth study, he indicated high people tension leads to a significant performance drop. Removing interpersonal conflict completely changes the equation, and productivity will most likely improve in a hurry. Young said that measurement, alignment and expertise are all imperative to strong performance, while accountability, commitment and trust are vital to relieving interpersonal strains.

Diving deeper into the relational component, Young explained gaps often occur due to personality differences. He compared people to icebergs in the sense that they tend to display positive attributes on the surface (i.e., talents, gifts and preferences) and attempt to hide any baggage (i.e., previous mistakes and underdeveloped skills). In order to attract and retain millennials, Young said it’s critical to cut through these challenges and get employees to the high performance/high fulfillment state. In his words, “What got you to where you are now might not get you to the next level.”

To start bridging the gaps, he recommended getting to know and appreciate employee and customer personality differences in key areas like decision-making, work style, attention to detail and energy. He counseled company leaders to adapt their approach to individual employees and customers, connecting in ways that put them at ease. Referencing a productivity study, he stated, “If I can drop the tension, we can put 95 percent of our energy on performance factors.”

In order to help company leaders engage staff and effect change, Young imparted some best practices: set clearly defined goals and expectations; make sure people have the training and resources to do their jobs correctly; play to strengths; give frequent recognition and praise; reward excellent service behaviors; encourage continuous learning and development; and listen more than you talk. Mastering these principles is crucial; employees who are doing what they’re passionate about will grow exponentially when given the right encouragement. Young charged the audience to take action, saying, “The only way you’re going to get to your preferred future reality is by taking ownership of your current reality.”

Cultivating truth tellers
Leadership advisor Doug Cartland delivered strategies for developing a healthy workplace culture where honesty and candor thrive. He articulated that these attributes can be your best friends; when applied at work, they’re tremendous assets.

During his presentation, Cartland pointed out the role of leaders is not necessarily to keep the peace but to facilitate challenges, disagreements and conflict. He presented a statistic that only 37 percent of employees trust their senior leadership. Beyond this, he cited several high-profile cases in which large numbers of people knew about a wrong decision yet chose to go along with it or simply remain silent.

He described the immediate value of honesty and candor, explaining these traits are necessary for any healthy relationship. For one thing, dishonesty leads to dysfunction; if you suppress your true feelings and let them fester, they can get out of hand and create unnecessary emotion. Cartland underscored the fact that a dishonest climate breeds resentment and can’t be hidden from clients. Honesty, on the other hand, establishes credibility. Even down to the tiniest details (like being prompt for a scheduled meeting), you control whether or not you keep your word, and train people what to expect from you in the process. He listed other direct outcomes of honesty, including accurate data for effective decision-making; quick problem-solving and troubleshooting; employees feel heard (a huge motivator); free-flowing innovative ideas; an indication of people’s character; and upward accountability.

Cartland itemized action items leaders can take to start cultivating an honest environment. First, don’t make it painful for people to tell the truth; watch your body language and don’t be dismissive of others’ comments. He pointed out that company leaders should model honesty in a respectful manner. For example, a performance review should not be a surprise for your employee; it should be a summary of dialogue you’ve already been having. Cartland encouraged the audience to foster a participatory culture for their staff on a daily basis, creating an atmosphere where people feel comfortable offering suggestions.

He identified approachability as another important factor. If employees feel like their leaders don’t have time for them, they’re less likely to speak up and be open about issues that matter. He cautioned the audience that people may not tell the truth if they’re afraid you won’t want to hear what they have to say or they’re worried about disappointing you. Cartland encouraged leaders to facilitate honest dialogue by working through disagreements and giving everyone an opportunity to be heard. Finally, he accentuated the importance of rewarding honesty; make sure your employees know you appreciate their candor.

According to Cartland, if you want to establish long-term credibility, be consistent. This gives you a foundation to merit the belief of others. Evaluate your workplace culture, and make sure you’re setting the right tone — even the little things matter.

Commercial truck application markets
Eli Lustgarten, president of ESL Consultants, shared analysis of the primary vocational truck application markets and how they interact with the U.S. economy.

Summarizing 2017, Lustgarten explained the second quarter reflected healthy economic activity. Consumer spending was up 3.3 percent — driven by employment gains, modestly higher wages and low interest rates. Business investment grew a solid 6.7 percent as compared to 7.2 percent in the first quarter, but residential and government spending levels were not as positive. According to Lustgarten, U.S. growth in the medium- to long-term is driven by labor force and productivity trends. However, economic growth from labor has almost come to a stop; demographics explain 75–80 percent of the declining labor participation rate. He stated that employment growth has slowed to the lowest rate since 2013, and the unemployment level is likely to remain in the 4–5-percent range for the next three years.

In Lustgarten’s opinion, the surest path to more rapid U.S. GDP growth is faster productivity. He predicts growth will continue in the U.S. in the second half of 2017 and into 2018, despite challenges as manufacturing improves. Consumer expenditures will likely slow (possibly falling to 2.5 percent or less as compared to 3.3 percent in the second quarter of 2017), indicating lackluster growth of real disposable income. Even still, he feels manufacturing is building and should carry the economic load into 2018. Attendees learned interest rates may start rising in December. The Fed expects GDP trend growth, which drives business investment, for the next three years. Hope for faster real GDP gains in the second half of 2017 has been diminished by macro factors and hurricane damage, though a rebound is probable in the fourth quarter.

Regarding the automotive sector, Lustgarten noted exceptionally strong September sales driven by initial vehicle replacement purchases from Hurricanes Harvey and Irma. This will boost results for a few months and lower inventories. He predicted 2018 automotive sales and production should be similar to 2017 levels, and presented data that suggests North American light vehicle sales have peaked and may decline moving into next year. The medium-duty market is expected to continue modest growth in 2018, supported by reasonably strong consumer demand, a growing economy and increased construction spending. Class 8 indicators show this segment is poised for growth. Capacity is tightening, and freight is improving, suggesting solid momentum into 2018.

Given the focus on emissions reduction, Lustgarten indicated possible acceleration of electric vehicle development programs. He explained the growing number of electric vehicles could fuel a nine-fold increase in automobile copper demand in the next decade.

Lustgarten finished his assessment by mentioning the construction sector. Spending in this arena has improved slowly in 2017 and, overall, will continue to recover across virtually all markets. Significant gains are possible in 2018, depending on execution of Trump’s policies.

Political dynamics
Political strategist Rich Galen concluded general session presentations for the Executive Leadership Summit, offering his predictions for the 2018 mid-term election and elaborating on the resulting effect party issues will have on business and the work truck industry.

Galen pointed out that a third of the Senate is up for election next year. With only eight seats to defend, he expects the Republican Party to maintain the majority and even increase margins slightly. As for the House of Representatives, he foresees the Democratic Party taking control; in which case, there will likely be a spirited battle for the leadership seats. He explained that if the Republican Party does lose the House, it could present significant consequences for the Trump Administration.

Galen provided some background on the different dynamics between races in the Senate and House of Representatives. Due to the shorter election cycle for representatives (serving two-year terms versus the six-year term for senators), Galen said their “political engine is always revved,” meaning they’re intentional about interacting with local constituents (e.g., regularly attending high school football games). He recalled that Tom Ridge (former U.S. secretary of homeland security, Pennsylvania governor and representative) used to say, “Run to win, but you win to govern.” Senators, on the other hand, tend to be less concerned about maintaining a local presence, he said. In a given election, senators on both sides typically have so many financial resources available that the marginal difference between an incumbent and a challenger doesn’t matter as much.

Touching on matters of political significance, he addressed healthcare, tax reform and infrastructure. He expressed surprise that the Republican Party did not seem to have a healthcare replacement plan, stating, “If you’re serious about something, you have an action plan.” In his opinion, this did not happen and was an unfortunate outcome. Galen does anticipate significant tax changes, noting that it doesn’t take much for tax adjustments to make a real difference in people’s everyday lives. However, he feels an infrastructure bill will not be passed in the immediate future — probably not even next year. While uncertainty abounds in the current political realm, it’s clear these dynamics will be important considerations for both parties as the mid-term election approaches.

Save the date for NTEA’s 2018 Executive Leadership Summit, scheduled Oct. 16–17