2019 Executive Leadership Summit identifies influential marketplace dynamics

This article was published in the December 2019 edition of NTEA News.

NTEA held its 2019 Executive Leadership Summit in October in Charlotte, North Carolina. During this sixth annual event, industry decision-makers came together to assess marketplace dynamics influencing commercial vehicles and their companies. Five sessions covered market and industry outlooks, workforce development, customer experience and geopolitical strategies.

Macroeconomic outlook
Dr. Thomas Kevin Swift, chief economist and managing director at American Chemistry Council, opened the conference with insights into U.S. economic expectations, including potential challenges and opportunities in 2020.

Referencing overseas activity, Swift said, “There is, indeed, a manufacturing recession,” as evidenced by Purchasing Managers’ Index. The downturn began with Europe, China and Brazil taking a hit, but China and Brazil are already starting to recover. Now, the deceleration has spread to North American manufacturing.

Dr. Thomas Kevin Swift shares a macroeconomic outlook at NTEA’s 2019 Executive Leadership Summit.

Considering year-to-year percent growth, mining and non-durable goods performed well in 2017 and 2018. Though we’re not in recession yet, looking at important factors like U.S. industrial production, a “pronounced slowdown” is predicted.

Swift outlined unique dynamics surrounding the U.S. unemployment rate, which fell to 3.5% in September — the lowest level in 50 years. From his perspective, the “unemployment rate is going to be fairly low” at least through 2021. This makes it hard to find good people to fulfill available jobs. Much of the employment slowdown has been on the supply side (finding talent); now, companies are holding back from hiring and practicing labor hoarding, so it’s becoming a demand issue.

In addition to demography pressures, Swift discussed influential technological forces, namely globalization, as consumers rely on companies like Amazon, removing many supply chain costs.

Swift relayed U.S. industrial activity is weak (mixed at best), with growth led by oil and gas extraction, computers and electronics, motor vehicles and parts, aerospace and construction supplies. There’s a pronounced production slowdown this year that should improve in 2021.

Given the rise of shale gas resources and enabling technologies, Swift referenced U.S. oil and gas production, saying it’s going to keep growing but at a slower pace. In his words, “We are now the world’s largest producer of oil and natural gas, and we see that continuing to expand.” It’s likely, in the last quarter of 2019, the U.S. will become a net exporter of natural gas and other fuels. The abundance of natural gas in the U.S. means prices will probably remain stable for the foreseeable future.

In summary, Swift concluded the U.S. is in the late-cycle phase of this economic expansion as evidenced by tight labor markets, easing corporate profit margins (due to higher wages and weak global growth) and a flat/inverted yield curve. The U.S. consumer remains solid amid low unemployment; business investment is hampered by rising uncertainty from trade tensions; and Federal Reserve has started easing monetary policy. While a recession isn’t expected for the next six months, Swift advised the risk of recession will be higher in the latter half of 2020 and into 2021.

Industry forecast
Steve Latin-Kasper, NTEA director of market data and research, provided analysis of the work truck industry, including discussion on market size and segmentation by cab type and weight class.

In his view, there likely won’t be a full-blown recession in 2020 or 2021 as it’s hard to have a recession when there’s so much personal consumption and low unemployment. He explained the relationship between gross domestic product (GDP) and the work truck industry, saying, “We tend to move in the same direction roughly at the same time, and we are much more volatile than the economy as a whole.” The commercial truck chassis market velocity curve indicates fairly good things are expected in the near term. It suggests sales and orders are still strong, though we can anticipate a decline in sales as the velocity curve is probably near its peak and may start trending down before year-end.

Latin-Kasper called out the current popularity of the commercial van market. Though the standard roof height segment is slightly down, the high roof height portion is growing and should keep expanding in 2020. Cumulatively, through July, NTEA’s OEM Monthly Chassis Statistics Program shows commercial vans gained 11% overall in the U.S. Looking at other sectors, tractors increased 25% during this same period and box-off chassis (Classes 2–8) picked up 6%.

Growth is more muted in Canada, as overall box-off chassis (Classes 2–8) increased 2% cumulatively through July, while tractors gained 18% and commercial vans dropped 2%. According to Latin-Kasper, Canada has a less complex economy (more natural resource-based), making it difficult to continue growth. It’s expanding at about half the rate of the U.S./Mexico market.

Steve Latin-Kasper presented a work truck industry forecast at this year’s conference.

Summarizing trends in the fleet community, Latin-Kasper said it’s not often fleet purchasing cycles are in sync, but a recession is one of those moments. Fleets enter a buying cycle roughly every seven years, and the latest one was in 2017–2019 — the primary reason sales are now starting to decelerate.

During Latin-Kasper’s presentation, he mentioned the courier industry benefited enormously from the explosion of ecommerce. This factor is partially why the high roof height van segment has grown so rapidly. The sector will probably increase through 2020, with a downturn not expected until 2021 or later. From his perspective, strong ecommerce activity means there are more industries shipping more things than consumers using personal vehicles to go back and forth to stores. He said, “Going forward, that will continue to be beneficial to this industry.”

Reviewing state and local government expenditures, Latin-Kasper pointed out levels are strong and have accelerated in recent years. The 2016 downturn can be attributed to massive political uncertainty. Though U.S. construction expenditures are down in total, construction activity in the government sector is not expected to decline any time soon.

After decades of slowing growth, electricity use is predicted to rise steadily through 2050. As long as the U.S. population keeps increasing, electricity will follow suit. Heavier focus on electric vehicles will also increase demand. From Latin-Kasper’s vantage point, the question involves which fuel will be used to generate electricity. Natural gas — “the low-cost alternative” — is the likely answer.

Latin-Kasper highlighted current market dynamics he deems most influential. On the bright side, real wages and incomes are rising (slowly); consumption of nondurable goods is strong; credit is readily available; interest rates are low; inflation is manageable; and state and local government spending is solid. More challenging dynamics include deceleration of vehicle sales due to the end of the fleet purchasing cycle; a tight labor market; demographic imbalances; capacity utilization limits; a decline in the construction sector; tariffs; and overall political uncertainty.

Workforce development
During her session, Amy Hirsh Robinson, principal at Interchange Group, announced the post-millennial workforce is here.

Amy Hirsh Robinson speaks at the 2019 Summit.

In the process of unpacking their often-misunderstood values, characteristics and behaviors, she described four generational archetypes that repeat over the years — “civics, adaptives, idealists and reactives.” She defined civics as disrupters and builders, with the GI generation (1901–1925) being a prime example. This generation grew up during a time of tremendous social change, powering through challenges like World War II and the Great Depression to be labelled the greatest generation. The adaptives tend to be cautious, helpful and process-oriented — exemplified by the silent generation of 1925–1943. Fueled by optimism, idealists are deeply values-driven. The Baby Boomers of 1944–1962 fit this mold, as they expand the world around them with their competitive spirit. Reactives align with Generation X (1963–1981); they are resourceful and independent, with an entrepreneurial, pragmatic attitude. Robinson pointed out this generation grew up with dual-income working parents, so they were raised by the TV and microwave in an age of unprecedented neglect. During this time, there was an institutional meltdown of sorts as traditional marriage, the armed forces, government, religion and education were all brought under scrutiny. According to Robinson, the next reincarnation of the GI generation is the millennials (1982–2000), who “are coming of age during a time of incredible change in our society.” In her view, the most recent generation — post-millennials (2001–2020) — aligns with the adaptives.

During her presentation, Robinson explained why these generational dynamics should matter to employers. She emphasized a top concern for executives is attracting and engaging a skilled workforce, and the post-millennial generation simply can’t be ignored. They are silent problem-solvers who have grown up in a world of disruption and uncertainty, influenced by circumstances like the Great Recession, 2016 election, climate change, alternative family structure, screens, social media, surveillance, and car seats, helmets and lockdown drills. Robinson indicated this group tends to value security, inclusion, collaboration, self-sufficiency, process and grit. Their key characteristics include being risk averse and rule-abiding, tech-savvy, self-directed yet inclusive, pragmatic, entrepreneurial and resilient. Robinson shared research indicating post-millennials are slower to enter the workforce and less likely to work than older generations when they were young. In general, they have much more liberal social attitudes that conflict with views held by those in the older generations.

Robinson presented five strategies for employers seeking to appeal to the post-millennial generation. First, she recommended ensuring inclusive culture and practices as this generation has no tolerance for discrimination and values fair, equal treatment. Then, she emphasized the need to offer economic security. Money matters to post-millennials, and they tend to value incentives like 401(k) matching and tuition reimbursement. Robinson encouraged employers to supply advanced technology and tools. From her vantage point, unlike older generations, post-millennials don’t fear technology taking away their jobs; they see these advances as bettering society. It’s important to provide practical experiences and solutions for post-millennials. Her analysis reveals they “are looking for their employers to be solutions to society as a whole.” Finally, given climate change is a top concern for post-millennials, she shared employers should be doing good for the planet. Robinson stated the ability of executives to adopt these strategies will make the difference in attracting this generation.

In closing, she encouraged the audience to ensure their future by engaging upstream right away (i.e., going into schools, sponsoring student groups, offering apprenticeships and reimbursing tuition). To become an employer of choice, it’s essential to adopt new methods for recruiting and retaining staff, prioritizing onboarding, talent management and succession planning.

Customer experience
John Formica (motivational speaker, trainer, top-selling author, The “Ex-Disney Guy”) asked the audience if they’ve ever wondered how The Walt Disney Company continues to produce a dynamic model of business excellence, leadership, teamwork, sales and customer experience. He said there can be a big disconnect between how companies view themselves and consumer perceptions. According to Formica, when you simply serve someone (rather than create an experience), you automatically make yourself average because people wonder how to get the same service cheaper elsewhere.

During his presentation, Formica pointed out the importance of a company knowing its purpose (Disney’s is making people happy). In his words, “No matter what business we’re in, we’re really in the relationship business.” It’s essential to get to know your customers, treating them as guests rather than business transactions. We all tend to make purchase decisions based on emotions/feelings, and people become more receptive when they realize you actually care. Formica believes, “Customer experience is the next competitive battleground. It’s where business is going to be won or lost.” At the core, customers are seeking reliability, empathy (responsiveness to needs/wants), assurance/trust, tangible takeaways, personal attention and a positive, memorable experience. 

Formica relayed his formula for unlocking the ultimate climate experience and team culture. Creating the dream — defining your culture — is the first step. He asked the audience to identify the three things they want customers to say about their business.

Then, outline the behaviors you want — what you’d need to do for your customers to describe your culture as you’d like it to be viewed. Formica indicated this requires attention to detail, getting to work early and staying late. If your heart isn’t in your work, it quickly becomes apparent to everyone around you. He encouraged attendees to adopt the “plus” factor — whatever you do, try to “plus” it by one. In essence, this means looking for ways to go above and beyond to make each experience memorable.

As magic begins with people, Formica said it’s never a good idea to hire someone simply looking for a job. He advised developing a hiring process that attracts people most likely to perform your desired behaviors (behavioral interviews can be very effective).

Beyond simply finding the right people, Formica expressed the need to invest in effective new-hire and ongoing training. You’ll want to evaluate whether or not staff members are in the right roles as people become the face of the company. Formica asked the audience to evaluate their training programs, urging them to reinforce desired employee behaviors via new hire orientation, ongoing training, employee newsletters, team meetings and one-on-one discussions. Employees have the opportunity to elevate the experience of seemingly mundane customer interactions. Formica said these encounters should be considered “show time” where every action is an intentional impression and direct reflection of you, your practice and your community.

Ultimately, it all comes down to accountability. Formica said company leaders should coach employees on acceptable behavior and recognize those following the defined value propositions. Taking the time to celebrate your people is vital because, if you treat employees like they make a difference, they will.

Following the Disney formula paves the way to differentiating your business and developing a magical experience for your guests and employees alike.

Geopolitical strategies
To conclude the 2019 Executive Leadership Summit, Peter Zeihan, president and founder of Zeihan on Geopolitics, delivered the keynote address.

He began by reviewing recent U.S. presidents in terms of their foreign relations success. From his perspective, following George H.W. Bush’s term in office, there was a 24-year void in effective foreign relations policy. Now, President Donald Trump is leaving his own unique mark on foreign affairs. For example, his administration placed steel and aluminum tariffs on Japan, sending a clear message the U.S. is no longer interested in operating the way it has in years past. Zeihan shared that, in terms of trade as a percentage of gross domestic product, the U.S. is the least involved country in the world, and “that involvement is going down.”

Considering North American dynamics at present, U.S. political and corporate leaders see Mexico as an important manufacturing partner. According to Zeihan, Mexico’s ties with the U.S. will make it one of the fastest-growing economies in the next 50 years. In his words, “Mexico is becoming the only country on the planet who is actually a partner” of the U.S. Considering Canada has a bulge of mature workers, the relative cost of labor and output has been pushed down, making the country more of a competitor with the U.S.

Zeihan explained that the U.S. should be glad for millennials. Consumption by this generation has kept the country out of recession since 2009. He made the point that, without the U.S., the world order is a retirement community (e.g., Brazil’s population is aging at six times the U.S. rate).

Factors expected to influence global economic growth include U.S. shale production; China labor subsidies failing as they experience a labor shortage; and the small number of countries in which a large percentage of the population is young (Mexico/Central America have a younger generation, and Mexico is starting to experience a labor shortage).

Regarding U.S. shale production, Zeihan assured the audience the U.S. is going to become a net energy exporter this year and will be energy self-sufficient by 2020. He stated, “The shale revolution has advanced further, faster and deeper than I would have ever guessed.” Despite the fact the U.S. is increasing its energy supply, it will still be a struggle to keep up with the demands of the world’s largest transportation system.

Peter Zeihan served as keynote speaker at the 2019 Summit.

Zeihan said China is the most indebted country in human history — emphasizing that at this point, its growth is no longer sustainable.

In his assessment, shortening supply chains should be a priority in most countries, and this is the direction things are heading. Zeihan said the days of a relatively risk-free manufacturing supply chain are over. For the U.S., risks are particularly high when dealing with Germany, China, Hong Kong, Ireland and South Korea. Texas and the South are learning how to integrate with Mexican manufacturing, while the North is getting edged out of the equation. Zeihan cautioned a breakup of big technology companies is coming, so expect higher prices, supply chain adjustments and more competition.

Regarding the U.S., Zeihan said, “We have the most securable geography in the world, as well as the richest.” He anticipates the U.S. leading the way into the future as the country continues to enjoy size, security, stability, liquidity and rule of law.