2018 in review
This article was published in the December 2018 edition of NTEA News.
NTEA held its 2018 Executive Leadership Summit in October at Hyatt Regency Baltimore Inner Harbor in Baltimore, Maryland. Business owners and managers gathered to explore the power of connections between people, places and things in the work truck industry. Five sessions covered an economic and industry outlook, workforce development, advanced technology and organizational culture.
Mark Vitner, managing director and senior economist of Wells Fargo Securities LLC, opened Executive Leadership Summit covering factors influencing the economy in the U.S., Canada and Mexico.
Vitner shared economic growth ramped up considerably in the second quarter of 2018, with activity getting a boost from tax cuts and the push to produce and ship goods ahead of tariff implementation. Consumption and business fixed investment were strong. According to Vitner, the economy’s underlying momentum improved heading into the fourth quarter. For the year, growth should come in around 3 percent. Looking ahead, he anticipates “growth is going to gradually decelerate.”
From Vitner’s perspective, the labor market has tightened substantially, with unemployment currently below the Federal Reserve (Fed) long-run target. He clarified “there are slightly more job openings than there are unemployed people.” Nonfarm employment growth maintained its recent strong pace, despite the seemingly low level of available workers. Vitner mentioned construction workers are in short supply throughout most of the country, pushing compensation costs higher. Job growth remains extraordinarily broad-based, and the number of job openings continues to increase across nearly all industries. The weakness in September 2018 was due in part to Hurricane Florence, and upward revisions were significant.
According to Vitner, fiscal policy is still stimulating the economy, with tax reform providing both a near- and long-term growth boost. He stated federal, state and local government outlays are rising following the budget deal and stronger state tax receipts. Given the strong economy, Vitner explained the Fed continues to push short-term rates higher. He indicated the Fed has some challenging dynamics to navigate, including low inflation, struggling emerging markets and a relatively flat yield curve.
Vitner said consumer confidence has risen to the highest level since 2000 and there’s optimism among small businesses. The rebound in commodity prices since early 2016 has supported new investment spending. More businesses are looking to expand; finding and retaining workers have become greater issues, while concerns about taxes and regulations have receded.
During his presentation, Vitner identified links between expectations for overall North American economic performance and commercial vehicle demand. Attendees learned manufacturing is strong throughout the U.S. and construction spending should remain solid — positive signs for the work truck industry. Vitner pointed out oil and diesel prices rebounded from their lows but remain well below levels reached earlier in the decade.
Scott Curtis, president and CEO of TWI Institute, started his presentation by asking attendees if they were currently using lean processes in some way. He followed up by inquiring how many have struggled with application, making the point that “by and large, most companies have focused too heavily on the tools” without understanding lean as an entire system that must permeate an organization’s culture. He cited survey results that at least 85 percent of all lean projects fail in the initial implementation stage due to lack of work standards; insufficient respect and trust to and from employees; and focus on tools and methods without enough emphasis on staff.
Curtis gave background on Training Within Industry (TWI) — an approach rooted in concepts learned when the U.S. brought inexperienced workers into shipyards and factories to support critical World War II efforts. He explained it’s an essential element of lean and continuous improvement programs around the world (including the Toyota Production System). Its methods complement lean solutions by providing front-line personnel with skills to facilitate standard work, improve methods and establish a culture for change.
He outlined five basic needs of a supervisor: knowledge of the work; knowledge of responsibilities; skill in instruction (job instruction training: how to teach people to quickly learn to do a job correctly, safely and conscientiously); skill in improving methods (job methods training: how to evaluate and take proper actions to handle and prevent people problems); and skill in leading (job relations training: how to analyze jobs to make the best use of resources currently available). Curtis classified knowledge of work and responsibilities as unique to a company or industry and, therefore, not the focus of TWI. Skill in instruction, improving methods and leading transcends a specific industry and represents TWI’s concentration.
Based on TWI methodology, “At the center of all this is your people — respect for people.” Curtis said having people as a core competency is not an easy dynamic for competitors to imitate. He emphasized the importance of “developing the worker in the workforce to become that core competency — to become that competitive advantage.”
Curtis identified that “one of the biggest problems small businesses have is finding and retaining employees.” His explanation is lack of engagement — leaders not making their employees feel like an important part of the organization. In his words, engagement is the extent to which employees commit to something or someone in their organization, how hard they work and how long they stay as a result of their commitment. He referenced statistical data that suggests approximately 13 percent of the overall workforce is highly uncommitted (essentially, they can’t be changed); 76 percent are somewhere in the middle; and the remaining 11 percent are highly committed. The goal is to engage the group in the middle because “engaged employees truly improve the work environment.” In a healthy work setting, employees find meaning in their work, and career development is accelerated.
In conclusion, Curtis shared case studies on how TWI has made a tangible difference for individual companies.
Commercial vehicle market expectations
Steve Latin-Kasper, NTEA director of market data and research, presented forecasts for the work truck industry and key end-use markets.
Delivering a thorough overview of the commercial vehicle landscape, Latin-Kasper shared Class 2–8 commercial truck box-off chassis and tractor sales increased from 2017 to 2018 in the North American market.
Looking at July 2018 box-off chassis sales in the U.S./Mexico, he pointed out the strip segment increased 20.8 percent as compared to the same month the previous year, while cutaways dropped 8.9 percent. By weight class, Classes 6 and 7 increased by 15.5 percent and 23.8 percent, respectively. Overall box-off chassis sales growth amounted to 5.1 percent. In the same comparison period, tractors (Class 7–8) increased 31.5 percent, while commercial vans (Class 1–3) dropped 1.3 percent.
In Canada’s commercial vehicle market, the August growth rate was 25 percent — much better than the 7 percent registered in the U.S. Latin-Kasper said to expect faster growth in Canada than the U.S. through the fourth quarter of 2018. Canada strip chassis gained 105.8 percent in July 2018 as compared to the same month last year, though total box-off chassis growth only expanded 2.5 percent. Class 2 picked up 50.8 percent, offset by a 42.8-percent drop in Class 6. Tractors (Class 7–8) increased 35.5 percent; commercial vans (Class 1–3) improved 10.5 percent.
Latin-Kasper emphasized demand for everything is going to grow due to a dramatic rise in U.S. population by 2050. After decades of slowing growth, electricity use is anticipated to climb steadily through 2050; this sector will probably become less volatile due to Department of Energy predictions that population growth should drive increased usage. The residential housing market will likely keep going in the right direction as there are enough millennials with sufficient funds to maintain a slow growth rate. Similarly, the courier industry doesn’t appear to be decelerating soon, though a peak is approaching.
According to Latin-Kasper, farm cash receipts are expected to pick up for the next several years as steady domestic and international economic growth supports longer-term demand for U.S. agricultural products. Nominal farm production expenses will probably increase through the remainder of the projection period (2026) as crude oil prices, interest rates and inflation are all likely to rise.
Latin-Kasper explained overall commercial vehicle market potential is driven by a complex and interwoven spectrum of economic factors. First and foremost, the tight labor market presents complications. Latin-Kasper considers this “the biggest factor going forward”; there’s not enough labor, though unemployment is extremely low. Capacity utilization limits contribute to the issue, making it even more difficult to keep pace with demand. Despite the fact the industry is producing as much as possible, Latin-Kasper said market velocity is down due to OEMs struggling to keep up with chassis demand given high backlogs and long-lead-times. In his words, “Chances are lead-times are going to get longer before they get better.” Oil prices will be a factor, with increased demand in India; prices won’t spike but will gradually climb into 2019. Meanwhile, inflation appears to have stabilized, mostly as income growth has been small relative to sales. Wage/salary increases are just keeping up with inflation. Debt is building — especially for the federal government. Tariffs and political uncertainty, in general, make international trade unpredictable.
Despite clear hurdles, Latin-Kasper highlighted some positive attributes of the current economy. Job creation is leading to higher consumption levels. Credit is more available and interest rates are low (but rising). In addition, capital expenditures are increasing, though this rate is decelerating.
In summary, Latin-Kasper clarified the work truck industry should anticipate continued growth but at slowing rates. In terms of Class 3–8 new registrations, IHS Markit predicts overall growth in the U.S. through 2019, but declines are anticipated starting in 2020. NTEA’s U.S./Mexico commercial truck sales forecast for Classes 2–8 validates this trend. According to Latin-Kasper, “We’re expecting a slight turndown in 2020 on an annual comparison basis.” He relayed IHS Markit expectations that Canada will fall less than the U.S.; Mexico will perform better than Canada in terms of commercial vehicle sales; and the U.S. will probably lag North America.
Augmented and virtual reality
VRSim President and CEO Matthew Wallace shared that augmented and virtual reality is being utilized as a business tool at ever-increasing rates. He described how small and mid-sized companies are leveraging this technology faster than ever.
Wallace explained virtual reality involves immersive experiences with simulated objects, interactions and environments. In short, this tool replaces reality, introduces new interactions and allows people to experience new environments (i.e., future worksites). He talked about advanced technology’s focus on altering real environments with digitally-simulated elements (data overlays, schematics and instructions). Notable advantages include its effectiveness in training and ability to provide targeted learning in a safe environment. This technology reduces waste, provides in-depth analysis and enables trainees to learn from mistakes. Trainees can learn by doing, enabling them to effectively interpret complicated processes. Wallace pointed out people have short attention spans, making immersive learning a powerful option. It’s contextual, engaging (cognitively and physically) and reusable.
While the technology is not new, Wallace indicated advances and popularity surges have made it more practical, available and affordable. Even still, he shared use of virtual and augmented reality is low. Generally, the technology is complex, costly, difficult to change and hard to update. He emphasized justifying return on investment is a challenge. However, he said it’s an investment, and early adopters reap the rewards with the advantageous position of leading the way, learning what works and what doesn’t. Wallace encouraged adopters to get to know the strengths and weaknesses of their new tools; identify the best way, time and team for implementation; and embrace the change, giving leaders the freedom to experiment. He recommended attendees consult with virtual reality users; discuss technology opportunities with their teams; work with experts; don’t expect miracles; and demand results.
During his presentation, Wallace discussed some practical applications for the work truck industry, including SimSpray — an immersive virtual reality simulation focused on developing key motor skills and muscle memory for painting and coating applicators. Attributes include a focus on essential skills and details, aggressive feedback loop and adaptability to training/certification programs, in addition to supporting custom parts and curriculum development. According to Wallace, SimSpray can result in a 20-percent reduction in operating costs; facilitate rapid skill acquisition; and minimize prep, cleanup and materials costs.
VRTEX is an immersive simulation providing an experience with motor skills and muscle memory for weld training. Wallace referenced an Iowa State University study citing markedly better performance among students using a combination of virtual and traditional weld training as compared to a purely traditional approach. When exposed to the virtual method, students achieved higher levels of skill mastery and improved training quality, and there were more practiced trainees at program completion.
Wallace made clear ties to the work truck industry, commenting the virtual reality space “will be the beginning of remote maintenance.” For the commercial vehicle community, potential outcomes of integrating this technology include reduced service trips, training time, labor costs and downtime. It makes experts more accessible, offering real-time assistance, and increases diagnosis accuracy. Wallace made the point that these tools don’t need to be flashy masterpieces to be effective; they should be focused, practical, repeatable, scalable, affordable and maintainable.
Attendees came away from Wallace’s interactive session with a better understanding of the technology, new applications, and how it is being deployed to enhance sales and R&D, in addition to improving product and customer support.
Cyndi Gave, president of The Metiss Group, concluded the Summit with a workplace culture conversation. In this fast-paced session, she outlined culture-defining approaches and how demonstrating core values can create a culture that’s more powerful than any strategy in your business plan.
She posed a thought-provoking question: Do your core values and culture support your business objectives? Then, she went through a series of value statements from easily-recognized companies, presenting both strong and weak examples. Going through these applications, she made the point that most organizations overlook these key elements and, by doing so, put themselves at a competitive disadvantage. She cautioned core values don’t necessarily determine culture, referencing Enron as an example (their values were centered on communication, respect, integrity and excellence, while the actual culture embodied greed and pride).
Gave said, “Culture is the DNA of the organization.” She said it influences bottom line, factoring into productivity, employee engagement and fewer managers (micromanaging becomes less necessary). In her words, “Whether you like it or not, the culture is a reflection of leadership.” She shared the thought-provoking concept that, if an organization’s leaders are not championing the culture and they’re allowing employees to get discouraged, it’s a reflection of them, too.
As part of her session, Gave conducted a group exercise encouraging the audience to identify attributes of a great workplace. Interestingly, typical responses are not focused on monetary incentives. She indicated the top reason employees give for leaving a company is an issue related to their boss — not senior leadership, but their direct supervisor.
Gave provided a core values assessment with culture validation worksheet. The validation step accounts for whether or not an entire organization is aware of a particular core value and if a company hires and fires employees based on their alignment. According to Gave, “Core values are really your differentiator in the marketplace.” She clarified core value characteristics go beyond basic teamwork and integrity (those qualities should already be a given) and really define what uniquely matters to a specific company.
She urged the audience to get to the heart of the culture challenge, saying, “If you’re governing by rules, you’re governing in a reactive fashion.” The goal is fostering a culture built on principles that matter to you. If you’re noticing misalignment, figure out what’s needed to return to balance as dysfunction spreads quickly. Gave encouraged use of company storytelling to inspire exceptional workplace behavior.
Save the date for NTEA’s 2019 Executive Leadership Summit, scheduled Oct. 15 at Charlotte Marriott City Center in Charlotte, North Carolina. Find more event information, including 2018 photos and presentations, at ntea.com/executivesummit.