This article was published in the December 2016 edition of NTEA News.
In October, NTEA held its 2016 Executive Leadership Summit in Las Vegas, Nevada. The event offered company owners and managers insights from high-profile speakers on business and market trends affecting the work truck industry. Five general and six concurrent sessions addressed recruiting and retaining the next generation; economic and industry projections; global and political expectations; and more.
What factors will influence the economy from now into 2018? Which drivers are expected to impact business investment? Michael Brown, vice president, economist for Wells Fargo Securities LLC, discussed key macroeconomic trends causing notable structural shifts.
“Economic growth should continue at a modest pace over the coming quarters,” he said. “We believe long-run potential gross domestic product (GDP) growth lies at 2 to 2.5 percent.”
Inventory tightening may be indicative of one of the structural changes in the business investment space. If we didn’t have the drag in inventories in the second quarter, we would have been around 2.4 percent GDP, said Brown. Going forward, this will lessen, which is an important reason for anticipated growth rate increases.
“Robust consumer spending has benefited from lower oil prices,” said Brown. “The outlook for business investment, specifically transportation, is directly tied to consumer discretionary goods in the U.S. Will this investment pick up to service consumer demand? It looks like it.”
Another important segment is small business, said Brown. Recovery cycle length has been sluggish in this space, due in part to the slower pace of the housing market recovery. A critical structural change today is the gap between small business confidence and home recovery driven by financial technology. “This is what’s disrupting space in banking. Folks don’t have a home — they’re renting versus buying and owning. They go to financial technology companies and do crowd funding where they can raise a lot of capital, which is unsecured debt.”
Millennials, which make up more than 33 percent of the population and have the highest per capita student loan debts, are the most diverse generation, said Brown. Looking through that lens, there is an influx of more multi-generational households and people living with roommates. It’s not uncommon for kids to live with and support their parents. This shift in population demographics is also playing a role in economic changes, he emphasized.
“Slower household formation translates to a much slower pace of homeownership and home-building activity,” said Brown. “Does this mean it will start to dry up in the U.S.? No — we’re still a nation of homeowners. But the mix of those renting and buying, and multi-generational households will be very different than in past.”
Regarding oil prices, Brown expects a gradual increase. They are appreciating slower than the income rate, which is good, and are helping stabilize emerging market economies. Mid-2017 will bring a return to equilibrium level with a faster pace of oil price growth.
Net exports have been a challenge for the U.S., which is pulling in a lot of imports but isn’t exporting as much due to slower global growth. In China, third-quarter GDP growth is 6.7 percent on a nominal basis. Brown said growth will continue to downshift, but no hard landing is expected.
A mild recession in the UK is predicted from late 2016 into 2017 due to uncertainty created by Brexit. The Eurozone should remain unaffected and even see some improvement in the year ahead, said Brown.
“While growth in the global economy remains below its long-run average, it would take a sharp downturn in the rest of the world to have a meaningful effect on U.S. economic growth,” he said, emphasizing expectations for continued modest growth in the United States in the coming quarters.
Peter Zeihan, president and founder of Zeihan on Geopolitics, began by outlining strengths that will ensure the U.S. remains the world’s economic, agricultural and military superpower. With a river network over useable land, control of the global ocean, and the largest market and military, he emphasized the nation’s solid position.
He detailed U.S. demographics as compared to other countries, outlining opportunities and short-term challenges. Through the years, baby boomers helped America become capital-rich — perhaps too much so, according to Zeihan. By 2022, the majority of baby boomers will retire, and all of that money goes from stocks and bonds to cash and Treasury bills. Abnormally cheap capital will go away, which implies darker days.
What does this mean for the next age demographic? “Generation X faces a size imbalance,” Zeihan said. “Oversupply of capital made it easy for them to borrow. This imbalance will flip and they will become the capital-producing class, having to support the retirement of 75 million baby boomers who will vote every time to keep the benefits they’ve awarded themselves over the years.” The outcome? A doubling tax rate. In addition, Generation X is providing capital to millennials, so the cost of capital will quadruple over the next decade, he predicts.
While this may seem like an issue that can cause challenges for years to come, Zeihan assures it will resolve itself in time. Millennials are the consuming generation right now, which is a key reason we haven’t been in a recession for the past two years, he said. In 15 years, they will fill out the tax-paying class in a way Generation X couldn’t. By 2030, there will again be sufficient capital supply.
He pointed out that no other countries have a millennial generation. Many had a 1960s baby bust, but no one aside from the U.S. and New Zealand bounced back. “Right now, we’re the dominant financial power courtesy of baby boomers, and the dominant consumption power courtesy of millennials. In 15 years, we’ll be the only financial and consumption power,” Zeihan stated.
More good news comes with the shale revolution — a series of changes leading toward a shift in best practices that will drastically alter how the industry operates. MicroSeismic monitoring enables the use of sound to create an image of how and where rocks fracture. It sharpens the drilling picture considerably, resulting in a detailed map of where the petroleum is. More effective fracking means we’re using less water and labor, said Zeihan.
Drilling has improved, as well, with increased use of multilateral technology. This allows creation of wells with multiple branches targeting widely spaced reservoir compartments. It provides engineers more options for optimizing economic extraction of oil and gas.
“The speed at which new technologies are being integrated to new best practices models is incredible and is driving down production costs rapidly,” said Zeihan. “The bottom line is all of these advances bode well for the U.S. energy industry.”
As for how the U.S. will fare compared to other nations, Zeihan reviewed geographic and demographic factors of countries around the world, including America. He highlighted global challenges such as aging populations (e.g., China’s one-child policy) and monetary difficulties. All in all, as Zeihan puts it, “The U.S. is the indispensable country. Without it, things fall apart.”
Attracting and retaining millennials
Amy Hirsh Robinson, principal of Interchange Group, started researching generational differences and their impact on work about 16 years ago, when the first of the millennial generation was entering college. In the next few years, millennials will make up more than half of the workforce — setting the tone for engagement, and shifting mindsets and practices of the older generation as well, she said.
As more baby boomers retire, there won’t be a one-to-one replacement ratio because the generation after is too small. This means millennials will need to be fast-tracked into leadership, which will challenge companies to think differently about their roles in attracting, growing and retaining talent, she added.
Who are the millennials and what are they looking for from their workplace? “For one, they believe the purpose of business should be different than what they are experiencing,” said Hirsh Robinson. “They believe businesses should create jobs for community and society. They want to know the companies they work for are treating all constituents equally — shareholders, employees, community, suppliers. They want to know companies are driving innovation.”
According to Hirsh Robinson, 60 percent of millennials say a sense of purpose is the reason they chose to work for their current employer. Enabling progress is key for this generation. However, many experience different workplace norms than desired. They expect diversity at all company levels; transparency (of information and decision-making); fluid organizational structures (the top-down approach is uncomfortable for them); collaborative work cultures; positive social atmospheres; flexible work environments; and real-time technology (platforms for sharing information, collaborating, etc.).
What can companies do to attract, retain and grow this workforce for long-term success? Hirsh Robinson reviewed five key strategies.
Define your employer value proposition
Create a profile for your target employee (what he or she needs and wants from an employer). Determine your company’s vision and strengths — and match them to the individual. What can you offer that complements their needs? Once you have an answer, communicate it to your employee — from the beginning of their tenure to present day. This messaging will help reinforce, every day, that they made the right call by joining your organization.
Intern and onboard with intention
Millennials may be turned off by differences between what they experience during internship programs and the full-time position when formally hired. As interns, they are told to explore the company, ask questions and get to know the people. When hired, they’re told to keep their head down and focus on the job. “They go from feeling like they’re part of something to being dropped off into these insular environments where there isn’t as much community,” said Hirsh Robinson. “So they feel like the whole experience is a bait and switch.”
She recommends companies pursue more structured onboarding programs. “Segment the orientation to the company (culture, history, products, services). Then allow them to self-explore, determine what they want from their career. Then marry the two and say here’s how you can be successful and navigate in our culture as well as meet your goals,” she said.
Invest in career pathing and development
Have visual career paths for employees as well as success profiles. Expose new hires to strategic projects for greater engagement and motivation. Mentoring and coaching is an area you can move the needle the quickest, said Hirsh Robinson. “This takes a little heavy lifting, as your managers don’t necessarily see themselves as mentors to this generation. They need to realize part of their role is to coach new employees to be successful,” she emphasized.
Develop management fundamentals
According to Hirsh Robinson, one of the things millennials struggle with is management. They aren’t as comfortable with hierarchy and aren’t experienced at dealing with conflict. She advised, businesses can’t assume they bring this skillset to the table, so it’s important to provide training in this area.
Make flexibility real
This generation needs and expects flexibility in the workplace, Hirsh Robinson said, which means embracing remote work options and technology. Allow more flexible start and end times each day, and formalize policies for flexible work so people know they won’t be judged. She cautioned, if you don’t role model flexibility and balance from the top, employees may think what you say is disingenuous.
“Millennials are your future. Accept this challenge, recognize the opportunities and take ownership of the solution. By doing so, you’ll create a true competitive advantage for your industry and your company.”
For resources on recruiting and retaining the next generation of employees, visit ntea.com/careercenter.
Truck market outlook
Steve Latin-Kasper, NTEA director of market data and research, and Gary Meteer Sr., IHS Automotive director of commercial vehicle solutions, discussed key industry application markets, including analysis by weight class and geographic region.
Latin-Kasper began the presentation by addressing the U.S. economy and the massive inventory correction that started at end of 2014 and ran through the third quarter of 2016.
“Consumer expenditures have been getting slower and slower with each bounceback from recession for the last five or six business cycles since the early 1980s,” he said. “This is primarily a result of stagnant wages. Consumer expenditures growth accelerated at the beginning of 2016, but capital expenditures continued declining. Capital expenditures will likely improve in the fourth quarter as the impact of the inventory correction tapers off.”
How did this influence the work truck industry? According to Latin-Kasper, not much for chassis and commercial van sales, which rose through the first half of 2016. However, tractors were affected by the inventory correction. Class 8 sales are expected to remain negative into the first half of 2017.
Going into the application markets, presenters first addressed construction, which came out of recession two years after the economy due to the lasting financial impact on the real estate segment. Residential and nonresidential sectors are growing. The National Association for Business Economics expects housing starts to reach 1.23 million units this year and 1.33 million units in 2017 (8 percent growth).
Meteer reported construction accounts for about 6 percent of Class 4–8 new registrations, with Class 8 trucks representing the highest share. “By region, the construction boon has been in the South for the past four years,” he said. “Across each gross vehicle weight range, the average truck is one registered between 2000 and 2009. Older vehicles are used in many construction sites, as there aren’t a lot of miles put on them.”
In the public sector, which was not influenced as much by the inventory correction, state and municipal governments will likely remain a good opportunity for work truck sales going forward. They tend to have older trucks than the private sector, and are still playing catch-up from the 2007–2009 recession. According to Latin-Kasper, expenditures rose through the first half of 2016, along with an accelerated rate of growth.
Class 7–8 trucks are most prominent among federal, state and local government registrations, said Meteer. By vehicle type, local municipalities are purchasing and using school buses, followed by straight trucks. By age, municipal and federal/state vehicles are older, with most typically registered between 2000 and 2009. “As an interesting side note, a year ago, the federal government passed a regulation encouraging the use of remanufactured parts for federal, state and local vehicles. This is good for parts manufacturers, as older vehicles need to be maintained,” he said.
Toward the end of the presentation, Latin-Kasper addressed predictions for the next recession. While it is going to occur, he said, it won’t be next year and probably not in 2018. “The worst case is two more years of growth. The best case? You could go a lot longer,” he said.
Regarding the work truck industry forecast, roughly 3.6 percent growth is expected for total box-off sales, and commercial vans could fare even better. Tractor sales may increase about 2 percent in 2017, as sales and shipments move back toward balance.
“What’s really looking good for the economy and, as a result, the work truck industry, going forward is that wages are starting to rise,” said Latin-Kasper. “Incomes are going up and personal consumption expenditures are escalating at an increasing rate.”
He continued, “Credit is good, and interest rates and inflation are low. Large fleets, which have a six- to seven-year buying cycle, were purchasing in 2011. This means the next big replacement cycle is approaching. All in all, there are many reasons to feel good about 2017.”
For more industry data and statistics, visit ntea.com/marketdata.
Power of pictures
Dick Durrance, CEO, photographer and speaker at Ideas and Images Unlimited, explored how photos can help companies tell their stories to customers and gain a clearer vision of their own future direction.
According to internet analyst Mary Meeker, 3.2 billion photos are posted online every day. The question is, what does that have to do with you?
“I think we all have a story to tell, and pictures can help tell yours,” said Durrance. “Whether you’re upfitting trucks into snowplows or manufacturing fire trucks, or if you’re a rancher herding cattle in Wyoming or a farmer selling vegetables in Maine, what you do is interesting, and photographs can communicate that in new ways.”
He emphasized that by sharing clear, powerful images — versus relying solely on words or data — industry companies can give customers and prospects a better understanding of what they offer. “We need the right equipment, words and messages to connect with the people we’re trying to reach,” he stressed.
Durrance shared three tactics for partnering with pictures to create and communicate ideas. First, form a mental image of your vision — then, use words and numbers to devise next steps to meet your end goal. “If you trust your imagination, you can create a picture in your mind and see how all the elements relate to each other,” he said. “Next, combine words and numbers to analyze the situation and determine what needs to happen to bring your vision to life. Adding pictures to words and numbers expands your thinking from analyzing facts to visualizing possibilities.”
Second, leave your comfort zone and connect with people from other walks of life — individuals who broaden your vision. This can enable you to more clearly see your customers’ point of view.
Third, go to a quiet place to ensure you’re harmonizing your values and vision. “If you journey deep into yourself where your core values live, you can be sure you’re harnessing your vision to them. As important as it is to understand others, it’s more important to understand yourself,” he said.
Durrance highlighted benefits of communicating a story, through images, to customers and prospects. He addressed resources for finding pictures, including stock photo sites and local photographers, and shared four criteria to aid in selecting the most powerful of the pictures.
- Light — it focuses your attention on the most important elements because your eye will always go to it, he said.
- Lines — they lead viewers to the important aspects of the photo.
- Shapes — they outline and draw attention to key parts of an image.
- Color — each shade has the power to communicate a message or invoke a feeling.
Throughout his presentation, Durrance shared photographs taken at different points in his career. During various audience exercises, he used photos taken of work trucks and personnel taken at NTEA member companies Auto Truck Group and Kois Brothers.
“I hope you’ll think more about how you can use graphic tools to tell the story about the special things you can do for your customers,” Durrance concluded. “Partner with pictures to bring the world the very best you have to offer.”
Save the date for NTEA’s 2017 Executive Leadership Summit, scheduled Oct. 24–25 at the Chicago Marriott O’Hare Hotel in Chicago, Illinois. For more event information, including photos and presentations, visit ntea.com/executivesummit.
The Work Truck Show® 2017
These and other topics will be discussed in depth at The Work Truck Show 2017. Visit worktruckshow.com/educationbyinterest for more information.