On a recent thread, Buckhed brought up the issue of property rights, and how they are being extinguished in the US. He rightfully pointed out that eminent domain was being used in order to acquire property for reasons other than those we have historically allowed – for instance, private dwellings are being taken so as to allow the development of industry/business, as it is deemed to be for the betterment of the community. Compensation for the acquisition is being provided to the owner, so I do not believe that property rights have been entirely extinguished in these cases.
However, as a businessman and owner of a manufacturing company, I have had many hundreds of thousands of dollars of my property rights extinguished without compensation. The extinguishment of company property rights has received very little, if any, attention from the media. The public in general would be clueless, or perhaps disinterested, that it is occurring. It is a major reason that manufacturing is leaving the country. The extinguishment of property rights is one reason manufacturers talk about “business uncertainty” and the pressure the uncertainty places upon them to abandon the US.
I invest heavily in equipment and plant. Over the years, regulations regarding health and safety change. Whenever there is a change in these regulations, some portion of my plant and equipment becomes instantly obsolete, and I lose the capital value of the affected equipment. For instance, when there was a change to the fire safety standards for my industry, I had to remove all of my facility’s lighting and replace it with “flame-proof” lighting. This cost many tens of thousands of dollars. I was in no way compensated for the old lighting, nor was I assisted with the cost of the new. When I asked an inspector what allowance was made for those companies without the capital to change the lighting, he said simply that he closed them down. No allowance for transition or capital costs was to be made. A couple of years later, a different inspector came through, and decided, based on his own interpretation of the regulations, that the lighting I had installed was insufficiently bright, and posed a safety hazard to my employees. I was required to further upgrade the lighting, at a cost of several tens of thousands of dollars. I, of course, lost my previous investment.
This scenario regarding safety has played out many, many times, at a cost to my company (i.e. to me and my partner) of hundreds of thousands of dollars. Other examples include upgrades to presses, to fork lifts, to paint booths, to electrical supply, etc. etc. etc. Each of these items was purchased and installed in good faith to prevailing regulation. And each of my investments was extinguished without compensation.
The scenario is very similar with regard to the EPA. They regularly change their regulations and interpretations. As we deal with the transport and automotive companies, the uncompensated costs to the industry are in the many billions of dollars. The cost to change engines to meet reduced missions targets is extreme. And when the engines change, so do the vehicles themselves. Previous investments on plant/equipment/tooling are lost in their entirety. I have lost hundreds of thousands of dollars when EPA regulations have changed, owing to the need to re-tool and re-equip, and to upgrade plant.
Recently, our local government changed its interpretation of zoning in our industrial estate, and we no longer meet the zoning regulations. We have been at our site for decades, but we are now fighting the rezoning. So far we have invested tens of thousands in the fight against the rezoning. If we lose (it appears we will be successful) the cost will be in the hundreds of thousands of dollars. We will receive no compensation, win or lose.
An additional area where regulations change is with regard to employment law/tax law. Continuous investment must be made to maintain compliance, and old investment becomes obsolete (software/personnel training/etc.). This seems like it would be a modest amount, but in fact it is substantial, albeit difficult to quantify.
It is my opinion that the major property rights issue in the USA is not related to private individual rights, but rather to property rights of corporations. The federal/state/local governments routinely strip value from corporations with no compensation. Their actions cannot be forecast, and are often driven by a small interest group. In addition to adding substantial cost to business, this situation creates business uncertainty, and as a result businesses stop investing, and look to take their businesses to areas/states/countries where there is more certainty.
It is no surprise that manufacturing in the USA has collapsed. The cost associated with the extinguishment of property rights is extreme, and growing, and the uncertainty factor is ever increasing. When these costs are combined with labor-rate differences, it is no wonder that manufacturing is fleeing to lower cost locations. Small manufacturing entities are trying to compete globally, against lower cost nations that provide greater certainty of capital investment protection. It is no wonder that they are struggling.
I have advised that people think long and hard before they buy into or found a manufacturing company, or any small company for that matter. There is extreme risk involved, and you simply cannot trust the governments to help maintain your investment. They can, and do, extinguish your property rights at a whim, and can send you broke overnight. Until governments begin to create a stable environment and give assurances that investments made will not be extinguished, then I expect businesses to keep fleeing to low cost and more stable environments.
LLPOH…the upgrades that you were required to make were for the betterment of those employed by you now and in the future . If you can’t supply your workers with a safe environment then perhaps someone who will can buy your plant after it is closed by OSHA and thus transfer your hard earned assets to them for pennies on the dollar . Making your plant better for the public at large is no different than taking from an individual through eminent domain;the only technical difference is that in one case an individual is given compensation and in your case the public at large is given compensation by having a safe working environment.
By the way..I hate OSHA !
@llpoh: As far as I’m concerned, you’ve got a lot more guts than I do. Your frustrations must exceed your satisfactions more than just now and then.
I wonder something. Since it is unconstitutional to impose ex post facto laws of any sort, how does the EPA, local zoning, et al, get around that. I fully realize that doing anything “legal” like suing the EPA or even a local zoning board is far worse than a zero sum game and the cost may indeed be less than just going tits up and spending the money to come into line with the new changes, it seems like something that needs to be done.
It is a lost cause? Do the Courts just ignore the ex post facto constitutional limitations and go along with whatever the Gov. (at any level) says?
MA
Buckhed – the issue isn’t that the employees/society are safe or otherwise. The issue is that the bastards change their minds/ the regs / interpretations with no notice or compensation – the new regs really need to apply on a phase in basis, whereby new plant must implement them as it is built. To force businesses that were founded in compliance with the regs in force at the time of foundation to implement new regs instantly is simply wrong. Businesses put up capital in good faith, only to have it confiscated from them with no notice or right of appeal. And a great many of the requirements are bullshit and subject to wide and varied interpretation. I am 100% in agreement with you in hating OSHA!
It is a pretty severe difference if no compensation is given, don’t you think? No compensation = confiscation. And when you confiscate business assets, funny enough the businesses quit investing and tend to move to where such confiscation doesn’t take place.
Muck – I would love to see this crap thrown out. But I can assure you, if it were possible the big manufacturers would have already managed it. For instance, we supply some parts to bus manufacturers. When new diesel engines are forced on them they spend many millions of dollars on implemnting the changes. You can imagine what the cost to truck manufacturers and auto companies would be. And they have huge budgets for fighting these kinds of things and for lobbying. But they seem to have little or no luck there either. I suspect because it only indirectly affects the public via job losses, etc., there is no groundswell of support for the elimination of the practice.
My experience has been, costly as it is, it is better to try to comply with the requests than to fight, as whnever I have tried to fight I get swarmed by teams of OSHA reps, etc. I had to fight the re-zoning, and seem to be being succesful there.
Twenty years ago, the fight was worth it. I felt I was creating something of value, for the community, for society at large, and for my family. Today, I am a lot more cynical and jaded. The bastards do indeed wear you down.
Blah. I lost my response to this due to a glitch in my new tethering system with the cell phone. Live and learn. I’ll rewrite.
This post is less about property rights than it is about the problems with Gooobermint Regulation of Bizness. Even so, it undermines llpoh’s own thesis that Property Rights will be respected, when they clearly are not by his own admission.
Thing about such regulations is they do have a purpose, which is to try to insure that workers aren’t subjected to abuse or unsafe conditions, as they are in less regulated places like China and Mejico. Capital will alway migrate to the place with the least regulation and the cheapest wages. Thing is, do we want to run factories under unsafe conditions using the lowest wages possible to pay? To deny this was the case here or in England in the past or in China or Mejico now is to deny history.
In order to make a profit, if you cannot raise prices you must shave costs, and if that includes not upgrading your electrics, that is what will be done. You always are competing agaisnt somebody less scrupulous then yourself with respect to all these things, and in absence of regulations it always devolves to the lowest common denominator, as it has in China. They don’t give a shit what they do to the environement or how low a wage they will pay. Unless we devolve down to that level, factories here just cannot compete with those factories. Thing is, do we really WANT that situation?
I agree that many regulations are onerous and ridiculous, I have had my issues with the Fire Department myself as far as my school is concerned. On the other hand, I don’t want to see Child Labor being used to cut costs, nor do I want to see factories with poor electrical and lighting systems burning down, nor do I want to see even MORE poisons being spit out into our rivers and lakes then already are still spit out. All these things ocur in the drive to cut costs and make a profit when confronted by others who will do the same thing.
How do you strike a BALANCE on this problem? It’s quite difficult because on the one hand you have the Individual Capitalist trying to be competitive and keep his costs down, on the other you have Da Goobermint charged with the responsibility of making sure he doesn’t get positively unsafe in his quest for profit.
In any event, at least as far as the Factory model of production goes, the question is moot because energy issues are making that paradigm unsustainable anyhow. Even complete Fire Traps staffed by 12 YO workers in India won’t be making a Profit once the cost of Energy goes negative in EROEI. The Factory Model and Industrialization is a product of the Age of Oil, and that model is going the way of the Dinosaur, in a big hurry.
RE
RE – I understand why it is done – it is the how that is screwing the pooch. If you build a plant to regulation and 2 years later they change the regs making your investment obsolete, you will likely think twice before you put your capital in play in such a place again. The US has long passed the stage that workers are subjected to atrocious working conditions. Transition periods must be implemented, and grandfather clauses must be implemented and honored, at least in the medium term. The capital costs are too great to bear if their is not some protection of the business capital.
Re private ownership, indeed these activities strip out capital and kill businesses. But advanced nations are not simply taking ownership of companies outright. They are killing them by stealth. I do not envision them changing from stealth mode to outright full extinguishment of property rights anytime soon. Further, if they do not wise up in the “advanced” nations, their will not be any businesses left to steal as they will have all abandoned ship.
The bastards are killing the goose from all angles – they are taxing and grabbing and spending on side of the equation, and they are starving capital out of the country on the other. The results will not be pretty.
Even if you accept the “Stealth” hypothesis, what’s the purpose behind it? Do legislators and regulators sit down and say “Let’s see how we can REALLY screw over bizness in the FSofA!”? Cui Bono? Who benefits? Somebody is benefitting here from this, although obviously it isn’t the small bizman trying to run a manufacturing plant inside FSofA borders.
Who benefits is multinational corporations that can maximize their profits by destroying competition inside FSofA borders and paying the lowest possible wages in 3rd world countries while adhering to no environmental standards whatsoever. This is the end result of unfettered and unregulated Capitalism. The larger the corporation grows inside such a system, the more power it has to lobby Goobermint officials to get the regulations it wants so they can maximize their profits.
It doesn’t matter to the Capitalist where he puts his factory, as long as the regulations are as lax as possible and he can pay the lowest wages possible. It didn’t just “randomly” happen that laws and agreements like NAFTA were passed to enable this capital movement. This was actively pursued by much bigger Capitalists then you are who got into the game before you did and have much more control over it than you do. They not only own Da Goobermint and the regulatory apparatus, they own the Monetary system you have to use to run your bizness. You are simply the victim here of bigger and more powerful Capitalists than you are.
RE
RE – if anything, the big companies get hit harder than the small. The costs to larger companies when, for instance, changes to engines are mandated, are astronomical. The tooling costs alone reach hundreds of millions, if not billions, of dollars in those instances. The auto and trucking and bus and engine companies scream blue murder and lobby their dear little hearts out to no avail. No, it isn’t them behind this shit. It is often the lunatic green mob and assorted lefties. Business is an after-thought. Big business doesn’t have the power, try as they might, to stop this shit, even spending millions lobbying like mad. Who benefits? Fucked if I know – but it isn’t those manufacturing in the US. Perhaps it is overseas companies that benefit. But not local manufacturers.
Sorry about the typos. I do know “there” from “their”, but my typing fingers seem to be ignorant of the difference.
LLPOH as a business owner you don’t face anything that I as a property owner don’t face. We both have regulations that change like zoning,building regulations,land use regulations and a laundry list of others . As I’ve said on this forum many times if you think you’re free build a deck onto your house without a permit and then let me know how free you are when the building inspector fines you.
I feel sure that the lady in New Haven felt she was putting her hard earned money up in good faith and the city council changed the rules. Like wise you have experienced the same thing . Perhaps if more logical laws that both aided you and the workers in your plant were in place then both sides would benefit. I understand your frustrations about the ever changing rules presented to us by unelected officials. That is why I’m more in favor of local control of both business and society as a whole.
RE….as they say for every complex problem there is a simple solution. If the owner,plant manager etc. “knowingly ” exposed a worker or worker to a hazard that causes them to be injured or killed then prosecute them under the same laws that you would a criminal. I’m sure that if a plant owner had to worry about going to jail because he willfully harmed employees, then safety and conditions would be on his mind .
Buckhed – to be a broken record, when I build a deck, I get a permit for it – always. The problem is they later come around and tell me that the codes have been changed and I now have to tear it down and rebuild it at my cost, or I will be fined and my plant will be closed. Now I think that is a pretty substantial difference between the two things.
If your property is rezoned but not taken from you via eminent domain you indeed have suffered a financial loss owing to the new restrictions, and may have legal recourse. Businesses seem to be less able to fight these things.
As ridiculous as it was to take the ladies house by eminent domain, she was in fact compensated and did not suffer financial loss. Business in fact suffers financial loss at a steady and ever increasing rate.
Buckhed – states that have instituted criminal liability for worker welfare have seen businesses FLOOD out of their states, and generally have reversed the laws quickly. My experience is that managers try to keep their plants safe for their employees, but accidents do happen.
No one wants to be in the position to possibly be criminally prosecuted for an injury or death, as the interpretatation of what they knew or should of known would fall into the hands of the local union/OSHA official or attorney general or whoever. And no manager is going to go near that situation if they have alternatives. Early on, I was offered a temporary job in one such state by my then employer (I think it was Arkansas, but it was a long-time ago now and my memory is faded) in a state that had passed stringent safety regulation. My response, even as a relatively young manager, was “Fuck that”. And the company was in agreement, and my memory is they closed that plant ASAP.
I once ran a plant where a woman came into the plant and shot her cheating husband with a 30-30 through the hip. How unfortunate would it have been if the state had criminal liability law, and someone had tried to make the case that I should have foreseen this as a possibility, and that I should have had armed security guards on site, or that I should have made sure my employees weren’t cheating husbands, or whatever. As I said, fuck that. I do everything I can, but the world is full of possibilities and opportunities for mistake.
One of my favorite sayings is that the difficulty in making anything idiot proof is that idiots are so damned ingenious. I really do not wish to be possibly criminally liable for their stupidity.
@LLPOH
Sorry, no, new engine regulations force trucking companies to buy new vehicles to meet new regulations. You constantly have to force upgrading of equipment and infrastructure to keep the whole game moving. Same reason Microsoft constantly upgrades its software, then gradually makes old stuff incompatible with new stuff.
Simlarly J6P must always be convinced he needs the newest phone, the newest Plasma TV etc. Unless everyone is continually forced into upgrading and replacing their old stuff, corporations cannot continue to sell new stuff in the volumes they need to make a profit.
I’m a real bad customer for Microsoft because I still run my Office 2000 software. its perfectly good stuff for what I do, the Excel spreadsheets work just fine as do the Access databases I create for things like Student Attendance, Grades Tuition Payments, Expenses yada yada. Fortunately I don’t have to pay Microsoft to keep loading that software on newer computers I buy, long as its backward compatible. its not stricly LEGAL according to Microsoft to do that, I’m supposed to pay them a new licensing fee each time I load the software onto a new computer I buy, but prior to around 2005 or so the disks you bought simply had a security code to enter showing you owned that disk. I simply never register any of this stuff. I bought the damn disk, I OWN it.
Large multinationals that have to do billions in upgrading just pass that cost along to the customers. Main thing for them is that EVERYBODY is forced into the upgrade, so that they then can sell new stuff that meets the new regs. Again, by offshoring to countries with lower fixed overhead, they out compete any local company forced to upgrade under the same rules, and then they gain market share.
The whole production-consumption paradigm of Industrialization REQUIRES that people constantly be buying the latest and greatest stuff. If you just bought one set of dishware and one solid Franklin Stove and were not shopping all the time for new stuff, the companies involved in making new stuff could not sell enough. There must be a planned obsolescence in a manufacturing environment that can produce so much so fast. If everybody kept their cars for 20 or 30 years, no car manufacturer could stay in bizness. Again, I am a real bad car customer because I drive a 22 year old Mazda. Why do you thing Da Goobermint di the Cash for Clunkers trick? Again, its to try to keep people consuming stuff.
As a small biz, you also are forced to continue to consume stuff, despite the fact your old lighting might be just as serviceable as my old copy of MS Office is. Again, this is part of the Capitalist paradigm you are bought into.
RE
LLPOH…so you have no problem with the lady losing her house, which she didn’t want to give up, for the greater good of society ? I guess she took a risk and like wise you’ll have to do the same when it comes to doing business. It sucks being in business sometimes huh ? At least I thought so when having to deal with the Barney Fif’e’s in control when I had my business .
We all have things taken from us without compensation. I think that Social Security fills that bill. Money is taken from me with out my permission. Anytime you take from me without my permission that is theft and the government has no right to use the law as a catalyst for that theft.
Just as you feel it is unjust to change the rules that you are forced to go by ;I feel that when it comes to my own private property I should make the rules. As long I don’t encroach upon your rights then I should feel that I should make my own decisions when it comes to my property. Does that give me carte blanche to put up a pig sty next to your house …no. I do however feel that I don’t need the governments permission with everything that I do on my own property.
One last question LLPOH ….As business owner do you believe you should be allowed to exclude anyone from being employed at your plant ?
@BH
I never heard the aphorism that for every complex problem there is a simple solution. Simple solutions just create other problems, as llpoh demonstrated in the case of putting legal liabilities on factory owners for running unsafe factories. Given that situation, the capitalist just goes and sets up his factory in some locale that does not enforce such legal consequences. Legal consequences are no different than a taxation or expensive regulations you have to adhere to. They just tend to be a bit more random in who gets hit and when, but you still have to factor that in as a Biz expense.
As with all forms of Goobermint intervention in our lives, regulations in industry are two sided coin. On the one hand you need protection of your environment and of the workers to insure some safety and keep the unscrupulous from expliting either the environment or the workers. On the other hand, such regualtions can become onerous and counterproductive, to the point they get downright ridiculous, and just about everyone has some ridiculous OSHA or Union Rule story to pitch out on this level.
The quetion here again is how do you strike a BALANCE? Very hard thing to do of course. Mainly, I think as a society you determine how safe your workplaces should be, and then you tax the living shit out of any products coming in from societies that do not maintain the same standards as you do. Allowing Fre Trade between different societies with vastly different standards of environmental and worker protections is simply foolish. You’ll never be able to compete with a country that will pollute its environment willy nilly, employ child labor and pay everyone a slave wage.
RE
RE – you said “Sorry, no, new engine regulations force trucking companies to buy new vehicles to meet new regulations.” I know you were a trucker and have some background in this, but then so do I. Truckers replace their trucks fairly regularly, owing to the extreme miles the drive. Diesel engines are good for a very high number of miles, but they chew threw them fast. Old trucks are not thrown out when the regs change. If anything, new regs result in older model trucks being in high demand just prior to the changeover point, and then there is a lull in sales of perhaps six months, then the normal buying pattern resumes. Trust me on this – I have been working for truck manufacturers a llong time.
The manufacturers hate it – truly hate it. Not only does it cost them millions in tooling costs, it destroys their steady-state sales. Trucks are built to order, largely, and whenever these changes happen, they have to battle a pre-change sales upturn, and then a post change sales-downturn. These huge swings cost them many millions of dollars. The overall long-term demand for trucks does not change.
Some of ewhat you say re new models is however true. My experience is that new models are more for the protection of, or the increase of, market share. And new models tend not to have major engine/transmission changes as the costs are simply to great. These type changes focus on cosmetics, which are a lot cheaper to implement. Trucks are simply too expensive for truck drivers to be throwing away. They tend to drive them until they reach their economic use by date, and then the old truck is moved on to someone who drives less miles, and a new truck is bought by the long-hauler. Heavy truck demand doesn’t change much – the timing can be moved in or out a few months due to regs, etc. but overall numbers cannot be increased readily.
Well LLPOH…I did say “Willfully” which is with knowledge. If you knew that the machine in your plant was going to hurt someone then you should be held criminally liable.
Case in point. I’ve worked most of my life in manufacturing in the automotive side as an engineer. We had a CNC machine from Cincinnati that had a viewing window that was cracked. Next to the window was a sticker that read “Replace window if cracked” . I spoke to our safety director and our maintenance director about it and both of them said they’d get around to it. I reminded them that from time to time when the part isn’t chucked correctly, the part is dislodged at 8500rpm;It leaves a huge dent in the steel sides of the machine. If a part becomes dislodged and breaks through the window, that employee or his family will own part of the plant if he’s injured or killed . They finally agreed to replace the glass and had the operator stand away from the window until a replacement came. Now if they had decided that it wasn’t cost effective to replace the window or that just never “Got Around To It” and the employee was maimed of killed then I think that those two mangers should have been held criminally liable.
You can’t have it both ways…it’s either OHSA or the criminal system…or as a third option… my justice system.
Buckhed – as I have said, I disagree with the decision to take her house, but she was compensated for it and presumably suffered no financial loss. Eminent domain sucks in virtually all of its configurations.
And I absolutely feel that I should have the right to employ, or not, anyone for any reason. It is my money and my business. I understand why empoyee protection laws were put in place. As for me, I care not one whit what sex/creed/race/religion/culture/origin a person is. Can they do the job, do they come to work, are they honest, etc. are all that matters to me. Shit, I currently employ people I find personally despicable. But they can and do do their jobs.
LLPOH….”Heavy truck demand doesn’t change much ” ?
Surely you jest….Heavy truck business is waaaaay off. That’s why I’m not working in that industry right now !!!!
LLPOH…at last common ground…I agree with your statement below 100% .
And I absolutely feel that I should have the right to employ, or not, anyone for any reason. It is my money and my business. I understand why empoyee protection laws were put in place. As for me, I care not one whit what sex/creed/race/religion/culture/origin a person is. Can they do the job, do they come to work, are they honest, etc. are all that matters to me. Shit, I currently employ people I find personally despicable. But they can and do do their jobs.
Buckhed – the problem is union organizers/politicians/employees with an axe to grind/DAs will determine what was “willfully ignored”. It will be a judgement call. Even in the case you point out, managers would have to make decisions – what is the likelihood of the problem? If it is one in ten, you do it immediately. If it is one in a million? What is “from time to time”? From time to time, cars roll over, yet we still have cars. If the manager made a decision based on his belief that “from time to time” meant one in a million work hours, would he still be criminally liable? Or does your judgement supercede his, and he automatically go to jail? You said if “he knew that it was going to hurt someone” – well, no one will ignore that knowledge. But no one ever knows that for sure – it is always a risk game. As is walking down the sidewalk, or driving a car, etc. Managers are paid to evaluate risk – and sometimes they get it wrong, or the odds bite them. There is no such thing as perfectly safe. And so it is extremely rare to see criminally liable laws in place for osha incidents – and rightfully so in my opinion. The fact is, employees need to take much of the responsibility – don’t use the machine with the cracked window if it is too dangerous – I wouldn’t. As the engineer, if it is too dangerous, condemn the equipment. All of my supervisors and employees have this authority. If they think it is dangerous, do not do it. We then work through the issue until all are satisfied.
Bucked – like most things, truck demand is a function of total consumer demand. If demand for goods is up, trucks do more miles, and if demand for goods is down, trucks do less.
Purchases of trucks can be pushed out for some periods, a year, perhaps two in really dire circumstance. But after that, trucks need to be bought, and a buying surge results. I didn’t explain it well. Truck demand will rebound as trucks wear out beyond the point they can be maintained economically.
Bucked – recent news story :
“U.S. big-truck sales soared in May, up 61.9% vs. a year-ago and far surpassing April’s 31.2% increase, previously 2011’s best monthly performance. Class 8 sales made the biggest leap, up 82.4% thanks to triple-digit percentage increases at Volvo Truck and PACCAR, up 175.4% and 145.4%, respectively. Through May, sales of medium- and heavy-duty trucks in the U.S. were tracking 30.9% ahead of like-2010.”
Sales have been down for some time. They cannot stay down forever as trucks wear out. And the replacement point is possibly being reached. I have seen this cycle for a very long time.
llpoh
Outstanding post. I view it as “LLPOH’s Short Story” = “The Burning Platform.” Your personal experiences speak volumes about why we’re at the point we are today in this country and reflect why this site exists.
Keep ’em coming.
i don’t care what you’ve read and I worked for a supplier for both PACCAR,Mack,John Deere,Volvo etc . We were a major world wide supplier to those companies and compared to 2006 and 2007 which were boom years for the trucking industry sales are half of what they were. Our plant had three shifts and worked 24/7. They now have one shift and work less than 40 hours sometimes.The same goes for Cummings too.
In theory, Trucks are driven by a trucking company until they reach the end of their useful life and the repair costs exceed the cost of amortizing out the cost of a new truck. That is more or less how it works in small trucking companies, but not the big fleets. I am talking about Schneider, JB Hunt and Werner here for the most part on the LTL level.
These companies are offered incentives by the manufacturers to replace their fleets on about a 4 year cycle. The fact is, given the legal mileage that you can put on a tractor on the order of maybe 150K miles a year for a single seat driver, it takes a good decade to burn out a Caterpillar diesel engine. The trannys are slightly less robust, though the models from abut 1985 throuh 1995 were positively indestructible even in the trannys. Decently maintained, these trucks can easily put 1M miles on them.
The way I bought my truck was I drove it brand spanking new as a Company Driver for JB Hunt for 3 years. At year 3, I bought the truck from JB Hunt for 1/3rd its original cost. I was the ONLY fucking driver of that truck for 3 years, and JB Hunt at the time had an excellent maintenance department in my KC Terminal. The truck had only about 300K miles on it at the time and was in fact better than new, because it was nicely broken in.
JB on the other hand bought a whole bunch of new Trucks offered to them at Zero interest, because Freightliner and Kenworth were practically giving them away. Upshot? When the recession hit in eanest, 100s of thousands of trucks were idled becsause there was such a glut of them on the market. I fortunately unloaded my Freightliner just before that occurred, and actually sold it for only slightly less than I bought it for after driving it for 3 more years. Basically got it for free and earned a decent penny during the 3 years I drove it also.
I cannot produce any evidence, but I am convinced the only reason JB Hunt, Shneider and Werner have not gone BK is because of debt extend and pretend by the finance arms of the truck manufacturers that sold them these trucks. Go to any yard and have a look around, the number of Idle Trucks is beyond belief. There are at least as many of them as there are empty McMansions. The overproduction was astounding. They don’t put these trucks up for sale because there is no market for them and then somebody would have to take the hit on the balance sheet for a short sale.
In any event, just as with automobiles, the companies that produce trucks must find ways to keep the buyers of trucks buying, and they produce them a good deal faster than they actually wear out. So all sorts of incentives are created to keep the buyers buying. Eventually you end up with a glut on the market, and the prices drop precipitously, and new truck manufacturers can’t sell jack shit because there are so many 2 year old trucks in brand new condition sitting on lots for 1/2 price or less. That was the case for a good 2 years but in the interim many plants were shuttered, and they are not producing so many now. The glut still remains though, and for at least the next 5 years or so, there are more trucks out there than we need drivers for, and even with most of the big fleets being kept off the market, you can go in and cut a deal for a nice Freightliner for less than the cost of a Nissan Leaf.
RE
Many thanks, SSS. These are the things which make a difference to the health of our nation, yet which go largely unseen and unrecognized by the masses. Who is going to recognize the problem and act? There is the old quote about what is good for GM is good for the country, and vice versa. GM is of course a debased example these days, but in the 1950’s it was probably reasonably true. What is good for business is good for the country. I am not talking about the corrupt banks and the horrid actions of GE and its ilk. I am talking about mainstream manufacturing and small business. We need someone to give us a chance, and to help us instead of hurting us at every turn.
“What is good for business is good for the country.” llpoh
“The business of America is business.” Calvin Coolidge
Good luck with arguing with Buckhed and RE, llpoh. You’re looking at the forest, they’re looking at the trees.
RE – I grant some of what you say. Trucks work on a cycle- I won’t quibble on the length of the cycle, be it one year or fifty. And I am sure there are some funny things which happen in the background.
Buckhed – I have been associated with the trucking industry for some decades. Yes 2006 was a boom year – it artificially pulled trucks forward from 2007. So then there were flat years, and the financial crisis, when sales reverted to more long-term trend-lines less the impact of the crisis. And now we are seeing a rebound, as the long-term trend-line must remain in force, plus or minus any effects of the change in the economy.
For instance, let’ say the long-term trend is 10 trucks per year. In 2006 they pulled five forward from 2007 and built 15, so that actual need in 2007 was 5. Then comes along the financial crisis/recession, and the long term trend of 10 is only 9 due to the downturn, and say 3 of those were deferred, for a build of only 6, or 40% of 2006 (actually close to the real percentage.) Say this happened for 2.5 years – so a total deferred is 3×2.5 = 7.5. So we have an unrealized pent-up back demand of 7.5, plus a real long-term demand of 9 or ten per year. Sooner or later the 7.5 will have to be ordered. Given we are still in recession, I expect sales demand to shortly rebound to 7.5 + 6 (there will still be some truck purchases deferred, so it isn’t 7.5 plus 9), for a full year sales of around 13. Still not 2006 numbers, but we will be having good truck sales coming along soon. Count on it. As the recent sales figures support.
Buckhed, you are getting out of your depth on this. I know from whence I speak.
SSS – I am a sad and lonely figure arguing with those two, I know. This is my current status:
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LLPOH…many of the problems that companies have are self inflicted wounds. If you make poor decisions you should go out of business. Like wise I disagree that it is governments responsibility to create jobs. Government never creates jobs ( bureaucracy excluded) it destroys them with a list a mile long of government regulations. As I said I detest OSHA but I detest those that will do ANYTHING to make a buck regardless of the consequences. So lets get rid of the bureaucracy and let business create jobs. I’m in favor of getting rid of corporate taxes too . However if you want a laissez faire environment then there has a to be a system of checks and there’s nothing like a chance in the clink to make some do the right thing( in most cases ).
GM…the same guys that rejected W. Edwards Deming, and Joseph Juran when it came to quality . Quality was the one the main reasons Japan started kicking their asses in the automotive war .
No SSS I cut down the trees in order to see what’s really there .
Buckhed – I am generally in agreement with your last post. Except for the clink part.
Here is the problem with assuming a rebound in truck sales based on your figures of projected demand.
First off, it ignores idled trucks which are not putting any mileage on them. They aren’t wearing out. If demand picks up, you just put these trucks back into service, you don’t need to buy new ones. Of course, if you get the EPA to drop on a new standard of fuel efficiency those old trucks can’t meet, then you could force the buying of new trucks anyhow. However, current models are not beating 1995 models by any great shakes. You’ll never get that big an increase in fuel mileage from trucks pulling 40 tonnes. It just takes a shit load of power to accelerate up that much mass. You might dfo better trying to regulate emmissions standards though. Again though, the 90s models have pretty good catalytic converters which I don’t think any great improvements have been made on in the last decade.
Second, there is no indication we are going to see rebound in consumer demand here. With greater levels of Unemployment and Underemployment, , the retail consumer sector which the trucking industry services can’t rebound.
What I would forsee is Da Goobermint setting down regulations which only the most recent trucks off the production line could meet. Braking requirements, sound requirements etc. Retrofiutting old trucks to meet those requirements would be prohibitively expensive. Large trucking Corporations would be offered interest free Goobermint backed loans to buy new trucks meeting the new requirements, while any small trucking companies that still exist would be left to twist in the wind. This in fact is what happenned through the recession, small trucking companies went out of biz in droves while the big ones picked up market share.
This keeps a few factories continually producing new trucks, which the big trucking companies finance through Goobermint backed ZIRP loans. Far as the old trucks go, you might buy one to pull hay bales around your farm, but you couldn;t get it licensed to use for Interstate OTR Trucking.
RE
LLPH…Buckhed, you are getting out of your depth on this. I know from whence I speak.
So do I LLPOH and I know from talking to people actively work in those industries right now . 2011 sales are better due to the fact that replacement trucks have been put off due to the down turn in the economy. .This hardly trumpets a recovery for the industry in the long run.With credit ever tightening there might not be enough capital for the smaller companies to replace their trucks.
I’ll bet you a drink in your favorite bar in the thirty blocks of squalor that I’m right .
Remember what Twain said…there are lies,damn lies and statistics . I’ve played with stats for years and I can make them say just about anything I want them to say. Need a 1.33 CpK…done !
One last thing before I go to bed LPH..the guy you quoted the sales numbers from said that the economy was in good shape and didn’t look gloomy to him .
His quote from that snippet…… Doesn’t quite fit the “gloom and doom” double-dip recession story.
RE…with the new EPA regulations many of the trucks could be forced off the road . I worked on the EGR (Exhaust Gas Recirculation) side for a while and those regs have gotten tougher. We made an EGR that had just about eliminated all of the nitrogen oxide emissions . Some of the engines from different companies were obsoleted due to the fact that the engines couldn’t meet EPA requirements.
RE – sales are currently rebounding pretty hard. Things can change but the reality is when trucks give out they must be replaced. Under current conditions the replacement will be delayed as long as possible. But indications are that truck sales are rebounding. So trucks are needing to be replaced and the purchase cannot be further pushed out. I do not expect 2006 sales but a return to the trend line seems likely.
RE/Buckhed – btw, my truck customers come to me for truck sales forecasts as I have proven over the years to be much more accurate than their internal forecasts or their industry bodies. No brag just fact. And I am telling them the same thing I am telling you. I am expecting truck sales to return to the trend line with more upside to the line than downside. But it isn’t an exact science.
@BH
Yah, this is to be expected. Whatever the current regulation is, Da Goobermint can always set a new standard that the old infrastructure cannot meet. Its a necessary part of forcing constant concumption in the Capitalist model.
Far as the trucking industry goes though, it is fucked on at least 4 ends here. Firrst increasing fuel costs they will be unable to pass on to the consumer without forcing further demand destruction. Second, increasing unemployment reducing aggregate demand. Third increasing Goobermint regulations requiring new trucks or expensive upgrades to old ones. Fourth increasing taxation burden to maintain the roads and bridges they use to transport merchandise. The trucking industry as a whole has long been subsidized by J6P driver for the cost of these roads in fuel taxes. With fewer J6Ps on the road driving fewer miles, the truckers will have to pick up the slack. Needless to say, if you drop the real costs of maintaining this infrastructure onto the trucking companies, the cost of transporting goods over the road would skyrocket into the stratosphere.
This is in no way a stoppable dynamic. The model has been perpetually subsidized since its inception, first by practically free local energy reserves, then after that by exploding debt. Once forced to pay for the real costs on a pay as you go basis with lowere EROEI fuel, the whole model falls apart.
The way it can and likely will be perpetuated for a while is by further extending the Fascist Model, and subsidizing a few large Trucking corporations with ZIRP money while taxing the living shit out of J6P to keep the roadways and bridges open. Given J6P is pretty much taxed out here already, that can’t last long either.
RE
@llpoh
Rebounding Truck sales YOY when compared to dismal sales through the recession doesn’t say much to me. Besides, I would’;t be at all surprised if these figures aren’t juiced by Da Goobermint. They could easily be stimulating some new truck sales by offering incentives to the big fleets to buy some new trucks while idling perfectly serviceable older ones.
A better measure here might be total miles driven this year as opposed to last, and as opposed to TMD in 2006. That would be all trucks by all drivers. I’m sure that statistic is available somewhere, I’ll try to dig it up.
RE
LLPOH, nice article and good comments. You carry the flag well.
OK, this took a while to dig up. I couldn’t get total miles, but I did find tonnage of freight.
“The U.S. transportation system moved, on average, 51 million tons worth $45 billion each day in 2007. Preliminary estimates from the Freight Analysis Framework (FAF) show that tonnage decreased 2.4 percent in 2008 and an additional 11.1 percent in 2009 after years of growth. Early indications suggest that tonnage is starting to rebound in 2010, increasing 4.6 percent since 2009 and reaching 91 percent of 2007 tonnage”
table available here
http://ops.fhwa.dot.gov/freight/freight_analysis/nat_freight_stats/docs/10factsfigures/table2_1.htm
We definitely see total freight decreasing from 2007-2009. 2010 might show some rebound, but the “double dip” recession is looming on the horizon.
My guess is we probably saw “Peak Freight” in 2007. My forecast is for decreasing tonnage in the years to come here, requiring fewer trucks and fewer drivers.
RE
As Repeated ad nausem in other posts – Meh, property rights and the rule of law are only for first world countries.
In this our glorious age of hope and change, the rules and property of those “too small to matter” are mearly resources to be harvested to futher the political ambitions of those deemed “too big to fail”.
The United States of Argentina, it’s change alright… but not the sort you want…
2006 was a peak build year and 07 was down. Truck build is off around 60 percent or more from peak while tonnage has dropped by around 15 percent. There is pent up demand that must be released and so I expect build to excede the trnd line, but as RE says the trend line may be shifting south. But in any event truck sales/build will be up substantially in the next 12 months year on year.
Sorry to all non-truck aficianados trying to follow this. If we were talking beer there would be greta interest.
Many thanks Eugend66. Always good to hear from you. We need another Vlad thread!
I won’t disagree with the projection of an an increase in build/sales on a YOY basis here for 2011-2012. There is still enough credit flowing through the economy for the big fleets to do their replacements, and they will be provided the incentives and/orEPA mandates to do that.
Longer term past that timeline, we can only wait and see if organic demand actually increases here to stimulate the need for more truck building, unsubsidized by Da Goobermint.
One thing I wil say is there is no fucking way I would buy a truck at any price myself right now and try to capture enough freight to make a decent living. I still have contacts with drivers and they are suffering big time. Until you have sat for a week in a decrepit truckstop in Fenruary in Canada after unloading at an auto plant there waiting for another load to get you the fuck out of there, you simply have no idea how frustrating it can be. In that case eventually as I did, you bite the bullet and deadhead yourself out of there carrying the complete cost of the fuel to do it, which when you are 300 miles up into Canada and another 300 after that into the FSofA to have a decent chance at a load and your truck gets around 9mpg if you drive it conservatively costs you at least 3 days pay. At least once I bought the truck I was able to do that though. Company drivers do not have that option. Dispatchers will just let you rot wherever you are until there is freight out of the place to move you again. Often drivers get so fucking frustrated by this they simply leave the truck where it stands and quit, packing up their stuff and getting on a bus home. For this reason, if you are a company driver, its wise not to pack too many personal possessions into your truck.
Just some words of advice from somebody who has BTDT. The OTR life is damn hard and frustrating. The washout rate is incredible. You have to be a loner who can stand isolation, and its only reward for a while was that you could make pretty good money doing it. That isn’t the case anymore.
RE
But what about all those hot truckstp chicks? They must have made the layovers worthwhile?
I have a few stories about Truckstop Annies of course 🙂 All truckers do. However, again unless you have spent a few days inside a Freightliner with some female the fantasy is a whole lot better than the reality for the most part. The Twin Sisters I picked up in OKC and dropped off in Denver were not too bad though.
RE
This is a great article and thread…
No, I’m not into OTR and sure not into Freightliners or Macks but I’m interested in everything that has to do with economics and they do!
So thanks for a fine ride on TBP, llpoh and re and buckhed.. You guys all know your stuff and what you post, if people take the time to really pay attention, is highly entertaining and educational.
@RE: You call me lucky? I’m not the only one that lucked out as you showed above! LOL..
@llpoh: I’d have really liked to work with you on a project back in the day. Same with RE – but too close contact there would probably have driven me nuts…
I was lucky in what and who I worked with through the 60’s through 90’s. Huge great group of mostly non-degree techs and engineers – more degreed toward the end, but not as good a quality. When you work with competent, ambitious, and professional people, it makes going to work a super pleasure – which I enjoyed most of my career.
Sorry your’s is getting hard on the spirit, llpoh…… Come fishin’ with me…
MA
Muck – thanks for the kind words. Another thread that goes everywhere!
Trucking and fishing – I am all for that. I love to fish. I get away once a year if possible for a week. It would be an honor. As I get older I find I more and more return to my roots – we were a bit redneck when I was growing up – cane poles and catfishing and hunting. I do not hunt but I get nostalgic at times. I do not look back fondly on the trapping I did, tho.
Trucks are often a leading economic indicator. They bounce back before the economy turns up and drop before it tanks, as a rule. However I think the recent uptick is more likely to be pent-up demand and not a forecast of an improved economy.