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Rush Enterprises, Inc.
2/19/2025
Good day and thank you for standing by. Welcome to the Rush Enterprise Report 4th quarter 2024 earning results. At this time, all participants are listen only mode. After the speaker's presentation, there will be a question answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message revising your hand as raised. To withdraw your question, please press star 1-1 again. Please revise that today's conference has been recorded. I'd like to hand the conference over to your first speaker today, Rusty Rush, Chairman of Board Chief Executive Officer and President. Please go ahead.
Well, good morning, everyone. Thanks for joining our 4th quarter in your end 2024 conference call. I have with me today Jason Wilder, Chief Operating Officer, Steve Keller, Chief Financial Officer, Jay Hazelwood, Vice President Controller, and Michael Goldstone, Senior Vice President, General Counsel, and Corporate Secretary. Now Steve Keller will say a few words regarding forward-looking statements.
Certain statements we will make today are considered forward-looking statements as defined in the Project Securities, Litigation, and Reform Act of 1995. Because these statements include risk and uncertainties, our actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include but are not limited to those discussed in our annual report on Form 10K for the year into December 31st, 2023, and in our other filings for the Securities and Exchange Commission.
As we mentioned in our news release, we had $7.8 billion in annual revenues for 2024, and our net income was $304.2 million, or $3.72 per diluted share. For the 4th quarter, our revenues were $2 billion, and our net income was $74.7 million, or $0.91 per diluted share. We were also happy to announce a cash dividend of 18 cents per common share. 2024 was a challenging year for the industry, which faced persistent headwinds, including the ongoing freight recession, high interest rates, and economic uncertainty. These factors hit -the-road carriers hard, leading to weak demand for new Class A trucks from that customer segment. However, our strength in the public sector and vocational markets helped balance things out, and we managed to hold our ground in a tough Class A consumer market. Our Class 4 through 7 truck sales were strong across various customer segments, and we outperformed the market in the medium-duty truck sales. The used truck market remains challenging, but we continued to execute well on our sales strategy, and we're able to deliver strong profits. The same challenging operating conditions that impacted new Class A truck sales also impacted the aftermarket industry. But our sales force's dedication to our strategic initiatives helped us to slightly outperform the industry, despite the difficult operating environment that we faced in 2024. I am very proud of our financial results. Focusing on the aftermarket, our parts, service, and body shop revenue was 2.5 billion last year, down .8% from 2023. Our absorption ratio was .2% compared to 135.3 in 2023. Even though our aftermarket revenues were slightly down, we grew our market share by expanding our national account sales force, which allowed us to enhance our service to large strategic accounts. Demand was sluggish and worthy over the road, energy and wholesale customers, but we saw strong sales to vocational, public sector, and medium-duty leasing customers. In 2025, we expect aftermarket demand to remain soft the first few months due to the freight market continuing to struggle, which results in lower -the-road fleet utilization rates. However, we are optimistic that that demand will pick up as the year goes on and the freight market improves. And we believe that our focus on growing our national account customer base and our other aftermarket strategic initiatives will result in revenue growth this year. We are also committed to expanding our technician workforce in 2025, particularly mobile technicians, which will allow us to reduce vehicle dwell time in our shops, better serve our customers, increase back counter appliance sales, and grow market share. Regarding truck sales, we sold 15,465 new Class 8 trucks in 2024, down .4% -over-year, representing .1% of the US market and .7% of the Canadian market. Market conditions were tough, with high inventory levels and competitive pricing. However, our sales to specialty market customers helped offset weak demand from our -the-road customers. ACT research forecast US and Canadian sales of new Class 8 trucks to be 277,200 units in 2025, basically flat with 2024. And we expect sales to be challenging in the first half of 2025. We anticipate the demand will improve in the second half of the year as freight rates recover. In addition, despite uncertainty around engine emissions regulations, we believe the EPA's clean diesel regulations will drive some pre-buy activity later this year. We are optimistic that pre-buys, along with strong vocational sales, will allow us to achieve strong new Class 8 truck sales and keep pace with the market in 2025. Our Class 4 through 7 new truck sales were up .1% year over year, with 13,935 units sold in 2024, representing .3% of the US market and .1% of the Canadian market. Medium-duty vehicle production is stabilized and delivery lead times improved throughout the year. Our strategic focus on diversifying our customer base and focusing on large national accounts paid off. And we outperform the market in new Class 4 through 7 truck sales. ACT research forecast US and Canadian sales of new Class 4 through 7 trucks to be 282,250 units in 2025, up .3% from 2024. However, supply has caught up with demand and we believe the medium-duty market may begin to slow in 2025. Nevertheless, we believe that our expertise in the medium-duty sector and our -to-roll program will help us achieve strong medium-duty commercial sales in 2025. We sold 7110 used trucks in 2024, basically flat year over year. The used truck market was challenging due to values continuing to fall and tight credit, but our disciplined inventory and pricing strategies helped us deliver strong results. With freight rates showing signs of improvement and used truck values stabilizing, we are cautiously optimistic about 2025. Leasing and rental revenue was 354.9 million, basically flat for 2023. Our rush truck leasing division continues to be a key contributor to our overall performance. While rental revenue was slightly down in the fourth quarter, leasing revenue increased as we replaced 1,500 units in our fleet. At the age of our leasing and rental fleet decreases, we should recognize higher revenue and lower maintenance and operating costs going forward. We expect our leasing and rental business to remain strong in 2025. I wanted to remind everyone that due to seasonal increases in employee benefits and payroll taxes that occur in the first quarter of every year, we expect our GNA expenses to be sequentially higher in the first quarter of 2025 compared to the fourth quarter of 2024. Lastly, I want to make a final comment on the proposed tariffs that may impact vehicles and component parts manufactured in Canada, Mexico, or China. We are currently monitoring this situation closely. If such tariffs are enacted and significantly increase the aggregate price of new commercial vehicles or parts, we believe the demand for new commercial vehicles and parts could decrease in 2025. Before we wrap up, I want to thank our employees for their hard work and dedication in 2024. Despite the challenges, they stayed focused on our strategic initiatives and expense reduction goals, helping us achieve strong financial results. With that, I will take your questions.
Thank you. At this time, we'll conduct the question and answer session. As a reminder to ask a question, you will need to press star 101 on your telephone and wait for your name to be announced. To withdraw your question, please press star 101 again. Please stand by while we compile the Q&A roster. And our first question comes from the line of Andrew Oben of Bank of America, your line is now open.
Yes, good morning, can you hear me? Yes, we got you, Andrew. Excellent, Rusty, given your commentary about second half recovery, how should we think about earning seasonality in 25 versus a normal seasonal pattern? And I'll just throw in, and specifically, when does parts and service turn positive again? So two part question, thank you.
You got it. No, Andrew, it's going to be an interesting year. The first half of the year, we're still bleeped in lingering effects with the freight recession, okay, without question here in the first quarter. We do expect though, but we are seeing signs of activity, right? Regardless of what the numbers showed, like in December, and then they had ordered numbers were down in January. We are seeing the last few weeks, signs of activity that don't tell me that we're going to get better in the over the road business in the back half. Occasional businesses are still strong, but we believe that you're getting, I think if you check with the larger over the road guys, they're starting to get low single to maybe up to, try to get maybe the mid single digits on the contracts that are coming up. So that has to take hold, right? That has to take effect, right? And it just doesn't happen overnight, but it shows, it breeds confidence in the over the road carriers. And the fact that, okay, we are, we sure bottomed out in the back half of last year, like we talked about it prior. Well, now we started getting confidence going forward and where we're at going into, going on into later into this year. And then I'll talk a little more in a minute if someone would like me to, about what we see when it comes to the government regulations and all, with everything up in the air right now. But I do believe, I'll get to the parts of service here in a second. I do believe that when you ask about what the year is gonna look like, the year is gonna ramp up from beginning to the end, okay? A tougher start, but I do see and believe that by the time we get into the back half of the year, we're definitely gonna be on the upswing again, when it comes to, I looked at the overall deliveries in retail in the US in January, we're down 2000 units from last January. So, I'm not saying it's on a couple of thousand, you are starting being a little softer in January from where you were last year. But we do firmly believe that the back half of the year will continue to ramp up. And I think that you're still, it's hard to talk about pre-bys and all, because we got too many regulation uncertainties out there, which I don't mind getting into if someone would like in a minute, that are still to be, you know, we still gotta figure them out. We gotta see what the government does right after the administration. It's only been in office, what, 30 days now, the new administration and obviously, I don't have to tell everyone that there's a lot of uncertainties, there are a lot of things, whether it's tariffs or EPA regulations or any of this stuff, are gonna shake out right now. We've got thoughts about it, but not sure, but I do believe that overall, it's gonna be a ramp up throughout the year from beginning to end. Maybe, you know, a better close than what we had in 24, that would be my plan. The back half will definitely should be stronger than the 24 back half, front half, we're just gonna have to work our way through it. Look, we had to work last year extremely hard. You remember I was called it hand to mouth, man. We were back in normal, regular times where you could get it, you didn't have allocation,
right?
You were working to get trucks and you could get them in 60 to 90 days. Well, guess what? That's still the environment we're in right now. From a parts and service perspective, it's gonna, it goes right along with what I see from when I talk about where we're at, it goes right along with truck sales, to be honest, with ramping up throughout the year. I think we make it a little bit more inflation, which will have, can have a, sometimes a positive effect on parts and service totals when you get through them all, but we'll have to see how that all shakes out again. But we do believe that it will wrap up, and we will get up into maybe not the first half of the year, I look for, like I said, the first few months fairly flat, but ramping up to mid single digits and, you know, growth when we get into the back half of the year is how I'd look at it. You know, you don't even wanna do more, but right now I don't wanna get, you know, I wanna be conservative with my outlook. I'm not wanting to really get out of, yeah, over my skis too far, as you've known me for 28 years. So, but we have confidence that we'll be all over the market as it begins to ramp back up, and we'll continue to, you know, drive. We still got, there's still runway left in a lot of our strategic initiatives, and we're always working on others. I'm behind the scenes, I mean, I talk about it. So anyway, that would be my take on the year, and it's pretty similar on both sides, ramping up, especially once we get settled out with all these uncertainties that are out there right now.
Rusty, and just a follow-up question. As things ramp up, how should we think about, you know, as J&A was one of the sources of upside in the quarter, how do we think about as J&A control as you ramp into the next cycle? Will it look similar to the prior cycle, or, you know, are there any incremental savings as you get efficiency? And that will be for me, thank you.
There you go, put the heat on me on J&A. Remember one thing, S is S. S is directly tied to the sale of drugs, okay? So we run the business off of J&A. Our S is gonna be, you know, that 25% range or so all the time, related to the gross profit of trucks. The J&A piece is what we, you know, we manage on a daily basis. I mean, you can look back at, you know, that was a big contributor this last year, big contributor. You know, we were down almost 5%, we were down .9% year over year in Q4. If I'm not mistaken, it was similar. I feel like seven in Q3, and it was sequentially, we were supposedly flat with three and four, but three was down like, oh, five, two, if I remember right, over two. So we did an outstanding job from my perspective in managing that J&A. As it ramps up, as you ramp up parts and service, you know, it's not like loaning cash or loaning money to someone. It does come with a J&A expense. And our goals will be to try to keep, you know, the gross profit dollars recreated on the back ends. We're gonna try to keep 40% or so of that. You know, I've got a goal to keep 50 or more, but typically, it averages out. If you go in the ramp up period over the three year cycle, it'll average out in that 40% range, 50, because we're handling parts. We're doing this, we're doing that. We're working with whole goods, right? So, you know, it takes people to do all that work, but that's a great situation to be in. And if we can stay close to that 50% number in a ramp up period, then I will be very happy about it. And we'll continue to, you know, we're looking for that. Okay, I'm looking to get back, you know, we were 135 down to 132 in absorption, and that's a direct correlation, obviously, with gross profit on parts and gross profit expenses. You know, we lost some gross profit last year, but we managed our expenses well to keep it that tight of a number to produce a year like that. When you're going negative on your parts and service, and that's not easy. Okay, so I would expect us to even do a better job. I'm not gonna get into specifics as to why I believe that, but the world continues to evolve. You know, e-commerce continues to evolve, which actually helps when it comes to expenses. It's not all the way there, but it's only going one direction. So all these, we should be able to do business, hopefully, cheaper, okay, in the future. It's not all the way there yet. We're in the truck business. We're not the most highly technical business in the world. So, but it is evolving. And I think there will be opportunities for us to take some of that normal, what we see in expenses when the cycle ramps up. Hopefully, we'll be able to take some of that out, with technology as we move forward. It's not ever gonna go all the way. But at the same time, we ought to be able to do a better job of trying to squeeze those expenses. But it's still, we still have 390 outside salespeople, right? On the parts and service side. So, they're not going away. But, business, I can see a shift in our business. Now, this is over a longer period, to, it continues to shift right now, more towards e-commerce, et cetera, et cetera, which you would hope you could take some costs out. But it can also bring in, make it a more competitive landscape too. So, there's a yin and yang there that you've got going with it. But I know I'm giving you a long-winded answer, but you're used to my long-winded answers. So, trust me, we'll, I think we'll do a better job on GNA and the ramp up than we have this
year. Thank you so much.
You bet, Jaren.
Thank you. One moment for our next question. Our next question comes from the line of Daniel Embro of Stevens, your line is not open.
Yeah, thanks. Morning, everyone. This is Brady on for Daniel. Rusty, I wanted to start by asking you about your different end markets. You know, you've talked about how resilient vocational has been for the past few years. For you in recent years, how did that market in the year? And you know, while you've talked about how class eight fleet sales, you know, probably likely take until the back half to recover. How are you thinking about that vocational side of the business in 2025?
Okay, yeah, no, we believe it was new, but it remains strong. I mean, we haven't seen, I would say we're starting to fulfill some of that, but there is still strength in vocational. You know, I mean, our construction business, I could possibly see, I can't believe I'm saying this, a little more in the oilfield pickup, which we haven't had to help offset anything else. The refuse business is still strong in 2025. So I mean, you know, I see vocational remaining strong, maybe not as deep or as big a backlog right at the moment, but still strength and demand, right? So because you had a transmission issue for a while a year ago that actually pushed, and we weren't able to get to all of it. Now we're chewing away at that, but we still got good demand. And you know, you never know, like I said, it's crazy for me to think, well, with oil and gas, what, the last four years, you know, that was a bad word. But you know, obviously with the Denver administration there, you're seeing some activity around that sector too, which we haven't had. So I feel pretty good about it, you know? Again though, look, we're not backlogged. I can build this up in 60 days if you want it. Okay, it's not like we've got these huge one year backlogs like we had in 23. Okay, that's not the case at all. So you know, there's no such thing as allocation. There's plenty of opportunity for build trucks out there right now because most factories don't believe we're running at full tilt at the moment. I mean, they're running, they're running shut down days and things like that, but they could ramp up build if demand came in line, which is something, remember in this industry, when demand hits that over the roadside, it happens fast and it happens really quick. So, you know, as we get into the back half of the year, you know, I wouldn't be surprised to see, you know, I'm not gonna call for allocation in 26 yet, but I could see it getting there. A lot has to do with regulations and things, but back to your original question, vocational still strong, man. And so we feel good about it.
Okay, great. Thanks for that color. I wanted to switch gears a bit for my second question and see if we could touch on medium duty. You know, medium duty has been very strong for you guys in recent years. Can you just talk a little bit about what's driving that strength and what you're expecting from medium duty in 2025?
Sure. Well, what drove that strength? Now, listen, we went into the year, medium duty had a big backlog, right? They chewed away at it. It all happened. You have to go back when we had supply issues in 22 and 23. Because manufacturers that built both medium and heavy chose to take componentry and put it towards heavy because they make more money on it. Well, that gave the medium duty, you know, so you had pent up demand. Medium duty was really stretched out. They weren't running them as fast and hard to manufacturers that do both. Well, guess what? Once Class 8 slowed down last year's run, they chewed out the medium duty backlog. So medium duty right now is just like Class 8. I can get you one in 60 days, okay? It's not that hard to get a medium duty drug at the moment. So while we expect, I mentioned in the call, I know that ACT has medium duty at five something percent. Kenny's a great friend of mine. I'm not sold on all that right at the moment for 25 to be honest. That's just a personal opinion. But I do expect, you know, we're gonna have a good year. I know in the back half we've got some good stuff working the fourth quarter, but that's a particular transaction. But we're still, it should remain, you know, I expect to be flat if you wanna know the truth in medium throughout the year. That would be about where I would think our medium duty. So that's strong. Like you said, we've got strong results. I expect it to be brainstormed. Is there a lot more to get this year there? I don't think so. I don't see it right now. But you know, because we caught up with our pent up demand that was created by medium duty not being the focus but class A being the focus of the supply side. The supply side's caught up. So medium duty's caught up. But there's still, you know, there's still good demand out there. It's just you don't have these pent up big backlogs like you used to have. So I hope that sends a little color on it. So I'm just, personally, I'm thinking it's gonna be probably flat. I think, you know, both sides. But I do expect to be somewhat back loaded, okay? Especially in age. I'm not sure about medium. I can say that for sure. You know, but for sure on the backlogs in the back half, you know, back to the eight, that's what we talked about ramped up. I can throw it, hopefully, ramping up throughout the back half of the year. And medium duty, probably pretty constant through the year.
But looking at a flat year, I don't know where you're at. Okay, great. Thanks for the... Yeah, go ahead, Russie.
Okay. No, I mean, as I said, and I'd like to talk about it in a minute, right? There's another call. I'll ramble on here in a minute about some of the uncertainties and things that are out there that will really dictate the year right now. But I have confidence in the year. But there are things surrounding our environment, just like there have been the last 30 days, that we're all waiting to get clarity on. So, which regulations, tariffs, and all that wonderful stuff, which, you know, can create a little bit of hesitation for folks out there. But I did say, as I mentioned earlier, we're seeing, you know, we're seeing some activity better in the last couple of three weeks, in spite of all the non-clarity. It's not real clear to me, I said, the uncertainty about where rules and regs and how things are gonna fall out here. Which have a very direct correlation on the decisions that, you know, the business people make inside their drug businesses. My voice is
about to choke. Go ahead. Maybe if I could just say one quick final one. Sure, go for it, go for it. You've built a lot of cash on the balance sheet in recent quarters. Can you just talk about uses of cash, Rusty? Are you seeing anything in the M&A pipeline? Kind of what are you seeing there for 2025?
Well, M&A is always my first option to spend money, right? You know, we have a committed, for seven, eight years, nine years, we've committed to return 35, 40%, and back to shareholders, which we've been doing some years, might be 50, some might be 30. It just depends, you know, we try to be opportunistic in repurchasing. We've been consistently raising our, oh, I think our dividend, you know, eight, nine, 10%, or somewhere in that range. We raise it in the second, give it to the second, MQ2. We take a look at it. Yeah, we're in pretty good shape. You know, I've been, I've got, we read, you get for your information, we redid all our credit lines in December and got a five-year run on all that. That has got to set up, if we need, you know, we can pull cash, we have good cash on the balance sheet, and I have great structure to get cash if needed, quickly. So we're set up to do M&A, but you got to find it, right? And trust me, that responsibility falls on me. And I probably need to get a, find a couple of deals that do work for us. I don't have anything imminent, and I wouldn't tell you if I did. So, but I mean, I wouldn't say that. Am I always looking at it? Am I talking to other people? You better believe it. But there's nothing huge. There's some small deals, you know, we've added a store up in Nebraska, a couple stores in Nebraska back in the summer. Really haven't added anything but Greenfield since a couple of little Greenfield places. But yeah, I'm always in conversations. But as I said, even if it was imminent, I probably wouldn't tell you. So that is the first choice of cash, and then the second choice is return to shareholders. We didn't repurchase as much last year as we did the prior year. But understand our approval is, we approved it on the 1st of December. So when I look at what we repurchased last year, I throw in a $65 million repurchase that we had in December of 23. And really after that prior, you know, when we approved, we approved a new 150 million every 1st of December. So we are repurchasing currently. Every day we do on a 10B5. So, you know, we repurchase the library consistently all the time right now. So I would expect our repurchase, unless I spend it on M&A, will be more than the calendar year 24, should probably end up being more, I'm pretty sure I know it will, in 2025. Because we still believe, you know, outside of giving any shareholders a dividend, but repurchasing our stock is a clear, you know, direction for management and the belief in this organization. And we've shown that throughout the last eight or nine years, consistently doing it. And we will consistently do it and continue because I still believe we're a great value. And we've got a lot in front of us. And there you go, there's your cash answer.
Okay, great. Thanks for all the time this morning, Rusty. I'll pass it on. Especially my
friend, you bet.
Thank you. One moment for our next question.
Hello.
Our next question comes from the line of Jerry Rosswicks of UBS. Your line is not open.
Hey, good morning. Good morning. Rusty, it sounds like you're interested in talking about some of the policy uncertainties. So interested in unpacking some of that. So starting with the emissions regulations and the engine changeover, you know, what are the latest like conversations with customers looking like around the pre-buy? You hearing any more uncertainty or less?
Yeah, well, I mean, you know, it's interesting, right? Because, you know, you gotta know a map, right? When you go someplace and you're going into unknown territories, it's always good to have a map where you're going. Well, we thought we had a very clear map as to where things were headed. As clear as mud is anyway, as to what was gonna happen and what happened in 24 in California, what was gonna happen in 27. Well, the new, and I'm gonna speak like I'm a customer because I am a customer, okay? I'm the middle guy, I am a customer also. So clarity, not right now. If you look back to the last, oh, back in, prior to the new administration coming on, ACF or clean few trucks, that was for our customer base. They were gonna have to roll in electric, you know, bed trucks and stuff over a time where that was thrown out, okay? Right now, as of last Friday for Valentine's Day, the EPA is challenging ACT or clean truck, which affects all the OEMs, which is how they're going to have to sell this many electric and do this much, you know, all these rules and regs. I'm not gonna get into all the detail. I got a lot of people, I got three or four people on my staff that are way more intelligent about it than I am. I know just enough to be dangerous, okay? So that is up in the air because it got approved outside of Congress. They're saying it should have been approved in Congress. So they're taking it to Congress. Now how it all sorts itself out, that's the new administration, which is obviously totally different than the prior administration, okay? They're promoting, you know, big promoters. Meanwhile, still, we understand there's an environment issue, but, you know, they're staying with, you know, with carbon fuels for longer, right? While we still work on the technology piece, which in truth is the right thing. So I don't know how it's gonna shake out. I don't expect the diesel emissions regs that are in place to go into place in 27 to change. I think it could line up, you know, to an 0.035. I personally think I could be wrong. They'll probably end up settling on this. It's just my personal opinion. And they're going, you know, lining it at 0.035. Well, that's still, you've got to clean it up more, okay? Remember, we're just talking about diesel. It's still diesel. We're taking the bed piece and taking the electric piece and pushing it out. That's what's gonna happen. That then taking some of your greenhouse gas stuff which is tied to the bed in 2030 and all these other years. I expect all that to get stretched out. That's my opinion, okay? I do expect the new rules of regs around diesel to stay. Now, are they gonna stay in the same context the way they're written now? Where you've got these huge long warranties on after treatment that have never existed. They take up a lot of the cost. You know, you're talking, nobody's really given a price of it. They're like, oh, man, you're factored. All manufacturers wait and then surprise you. But you know, we're talking about 15, $20,000 and you know, with after treatment. Now, a lot of that is written in is because of the warranties. Could those change? I hear rumors all the time that they might, you know, that they might change a lot of that cost. So that would change some of the costing of it. I don't know that it will or it won't, but all those types of issues are what are gonna be vetted here pretty quickly. We are still, look, we've been cleaning diesel up for a long time. I mean, go back to 1988. 60, I say 60 trucks today produced what one truck produced back then when it comes to NOx and things like that. That's a crazy number to me. We cleaned it up in 04, we cleaned it up in 07, we cleaned it up in 2010. So we're gonna clean it up again. I don't, but we're gonna slow down what those numbers turn out to be, what those warranties, I can't tell you yet, because you know, that was Friday, it was happy Valentine's Day. Later they just announced, the EPA did, that they're going to try to run this all back to Congress. And I, but the OEMs have spent way too much money on this after treatment stuff, preparing for this. So I don't see it going away. That's just my, all we're doing is cleaning up diesel, man. We've done it a lot, we've done it for decades, okay? So there's nothing, that's the right thing to do. The right thing to do is to do that, push out some of these bad requirements because they're way ahead. I mean, look, we got a hundred, I'm sorry, I'm just talking plain. We got 120 years, 120 years of infrastructure around internal combustion. And we're gonna change it in six, seven years. Give me a break, okay? We don't have a grid, we don't have the infrastructure. There are so many, is it the right thing probably to do long-term? Yes, but also doing it with automotive is different. Then trucks, trucks do so many different applications. You know what a car does? I don't care if it's a Kia or a Ferrari. It goes from point A to point B, okay? That's what a car does. Trucks, I don't care if they're picking up garbage, pouring concrete, hanging signs, they all feel over the road. They do so many different applications that I expect it to be a multi-pronged answer when we get there. But it doesn't get done in this shorter period of time. So, you know, there you get Rusty's rambling on about his own thoughts. We'll get it done in 20 years. We'll get, that will be more. That will be for a lot of applications, you know, around town and this, that, and the other. But we don't have the necessary components. I mean, you know, I use this in my simple way. Some people think it's like plugging in an air dryer. Let me tell you something, it's not. Okay, it's way more complicated than that because of the grid of an infrastructure and everything. We can't even catch up on the cars, right? And automobiles will be way easier to do than trucks because of all the different applications. So you're getting a long rambling answer, as I always say, but I expect we're gonna go through with the diesel changes. They could tweak them, but if we could tweak the warranties. But we're not gonna change flipping the diesel switch again in 2017 because there's been too much spent, too much prepped. We will go through in some form or fashion. But what'll happen is the other stuff will get pushed out to give our industries time to refine the technology and the things that are needed to do it properly, okay? We're not there, man. And to do all that we were trying to do, it was, I get, I understand we gotta do a better job cleaning the environment up, but we gotta do it within the bounds of reality. There's your answer. I think there'll be a free buy. I don't know how it'll all shake out to how much because anytime you come with new after treatment and stuff, boy, do I remember 2010, okay? Everything was all this DPS clogged everywhere, et cetera, et cetera. I'm not saying that that'll be the case, but I'm saying there always is issues. We'll be dealing with issues with all the new diesel technology, which is typical, okay, when you do things like this. That's how it works. But it's something we could work on and do, something we've got 100 plus years dealing with, right? So we'll figure all that while behind the scenes, we do the right things to get into these other technologies, whether it is, not everything's gonna be electric and hydrogen and fuel cell and all this other, while that continues to progress. And then it'll take its place over the next 20 years.
That makes sense to me and I appreciate the perspective there. Shifting over to tariffs. So I know you noticed that, the uncertainty around that and the prospect that it could really increase the price of trucks and squeeze demand. Oh man. So I guess two things there. One, just could you help frame for us what that impact beyond the cost of a new truck? And also with the uncertainty, are you doing anything differently this year in terms of managing your inventory to try to mitigate that risk?
Well, first of all, about 17 days ago, maybe 18 on a Saturday, I'm going, are you kidding me? We're really gonna put 25% tariffs on Mexico and Canada. I understand the Chinese part, but the automotive sector, and I'm not just talking drugs, there is nothing more tied to Mexico than the automotive sector. I mean, all the suppliers, all the manufacturers, everybody's got plants down there and stuff. And it's like, you gotta be kidding me. I understand, I don't understand fentanyl, but I read about it and I understand the immigration issues, but you're messing with an economy now, let me tell you. You're talking, if it's manufactured down there, you're talking $30,000, $40,000 in a truck. And even if trucks that are manufactured in the US, they'll have components for you. If you put a 25% tariff on there, that'd probably be another 10,000. Automobiles will be six, 8,000 depending on who and where and what. I mean, it's always, remember the devil's in the detail on the fine print, right? So I'm not the expert on all of that, but I gotta tell you, that makes absolutely zero sense to me. I believe, I've told everybody since, new administration was announced back in November, that it's a negotiation. I cannot believe that we would go do that. Look, those factories, it's not like China. Those are our factories. I'm on the border, out there on the border. I'm more than raised in Texas, okay? I have the whole border for Peterbilt, all the way from Tijuana to Brownsville. I understand. We built those materials that were plants back in the 80s. Okay, they're our stuff and more and more and more. I cannot see doing that. I just truly can't see. We own them. It's not like we're studying about them, China. We own those factories, okay? It just makes absolutely zero sense to me. We need a strong, you know, a solid neighbor on the South. It's just a labor position. We build all that stuff down there, but it's all our stuff, man. So it really doesn't make any sense to me. Would there be disruption? Yes. Is there something I can do? Well, first somebody tell me a date. I got two weeks. Okay, well, no, I can't do anything in two weeks. We would just deal with it. But you talk about crippling, and you gotta realize like Laredo, Texas, that's the biggest port in the United States. I don't care about these ocean ports. There's more freight coming through out of Mexico than you get. I'm on I-35. I look out my window right there. Over half the vehicles are trucks going up and down the highway, okay? And it's all, you know, from manufacturing that goes on in the South. And, you know, I don't know, but we'd come up with a workforce to do it all anyway, as we work our way through it. But, you know, I'm getting into my own personal views here about all that, but you're gonna know, because I don't find telling them. So it just makes no sense to me. I've got to believe it's saber rattling and negotiations. Maybe there'll be some hand slaps and things like that on the wrist or something. I'm not close enough to the government to really know what they're thinking. But I don't see doing that with your two bordering neighbors, one to the north and one to the south, the only ones you border, okay? I have a hard time making sense out of that personally, especially when we built it all, okay? So, I mean, we drove all that ourselves. Wasn't driven by how over, you know, do people have plans?
Yeah,
OEMs have contingency plans around how they would get around it. But it would be costly and it would be cumbersome to implement and take time. But sure they do. You know, OEMs are thinking about it. They have to, I have to. Yes, I've thought about it. But I have a hard time believing we're really gonna do this with Mexico and Ghana. That's just my opinion. I could be dead ass wrong, excuse me, dead wrong. But, you know, don't worry that we've thought about it with behind the scenes, yes, there are plans as to what we would do. How would we react? I just have a hard time believing we're really
doing it. Come on. That makes sense. I guess moving a little bit away from the uncertainty or the opposite towards what we're seeing today. So I know second half last year, there was a bit of discounting on new truck pricing. And so just wondering if that's something that we should be expecting here for the first half of 25 as well.
No, I expect most of the stuff that we're doing right now is pretty flat. Slight, I mean slight maybe increase. I don't see a lot of discounting. Maybe a one-off deal here or there, but there's not broad-based discounting going on. I mean, we'd already taken margin out last year, okay? Some of them, when I say that, you know, the manufacturers, and then through us, and we've managed to maintain a good blended margin as well as tell folks, remember, we don't sell just average, we sell medium, we sell used. So we've done a pretty good job, I'll keep it over 9% or better, of blended margin. So was new compressed a little bit? Yes. Do I see it getting compressed a whole lot more? No. I think we'll be pretty, you know, we've already been a little bit compressed on it. I think most GOEMs, what we've been planning on having a pre-buy, right? So, you know, they were trying to maintain what they felt. Maybe you can look, their margins are awesome. You can look at it a little later than the way, back half of last year, there's no question. But I don't know how much more there is to take out of that. I think there'll be enough demand to keep things pretty flat, to be honest with you, without getting any increases in anything. You know, I don't know, I expected everything to stay pretty flat.
All right, very helpful. That's it for me, appreciate the time, thank you.
You bet,
thank
you,
sir. Thank you, I'm showing no further questions at this time. I'd like to turn it back to Russ D. Rush for closing remarks.
Okay, I guess I look forward to talking to everybody in April. This is the shortest time between calls. Talk to everybody in about two months. And thank you for your participation today.
Thank you for your participation in today's conference. This has conclude the program. You may now disconnect.