Loonie flipping trucks upside down

TORONTO — Poof. Just like that, as the Canadian dollar rose in value against the American dollar the value of Canadian trucks and trailers evaporated.

Macro-economically, our industry has experienced a tremendous slide south in the net asset value of the companies concerned. Anyone today that’s not thinking about it may not even realize that somebody has reached into his back pocket and pulled $20,000 out of it.

It’s just simple math; take a $100,000 truck and a 20-percent decline in value because of the U.S. dollar’s exchange slide. Do that driver by driver across the industry, and it can get to be a pretty eye-opening number. Do the math on a hundred million or a billion dollars worth of assets across the industry. These swings are not insignificant when you’re talking a 20-to-30-percent exchange rate differentials.

Surpluses of used trucks, coupled with eroding
equity will keep equipment prices down.

Of course, the loss remains invisible until you have to act on it. And when a truck gets to be five years old, you no longer have much of an option. It’s time to fix it or deal it. Either way, it’s going to hurt. Fleets and owner-ops will feel the decline in equity when it hits the books — either when you sell, or when you trade.

“I can’t remember the last time a guy walked in [to the dealership] with real equity in his truck,” says John Nelligan, the general manager at Harper Ontario Truck Centre in Mississauga. “It’s all manufactured equity. They just keep dumping it from the old, and adding it to the new.”

And it’s not just owner-operators. There are many creatively financed fleets around today too, insists CPX’s Jim Mickey. “They got in no-money-down, but left themselves with huge balloon payments to keep their cash flow in line. Some of them are underwater already,” he says. “Maybe even more so than your average owner-operator because they have the leverage to force lenders to give them the bigger residuals.”

It’s those residuals that’ll kill you, especially if your banker starts getting nervous.

Nelligan described one fleet he knows trying to shed 40 trucks that are worth half of what the fleet owner needs on the trade. “He’s twenty grand upside down on every truck,” he says.

CPX has a yard full of trailers that were built in Utah, and paid for in U.S. dollars. “Every time the exchange rate moves up, we’re losing value in those assets — almost hour-by-hour it seems these days — simply because the replacement market for a four-year-old trailer is being affected by the new price on a trailer built today,” observes Mickey.

Once the equity is gone — whether it’s an exchange rate issue or just the world recessionary influences — you have a lot of businesses that are suddenly not viable. The asset isn’t worth what is owed on it, and with little or no ability to fund a new one, the whole business plan falls apart. Poof.