Q4 2022 Paccar Inc Earnings Call
Okay.
Yes.
Speaker 1: The conference is now in presentation mode. Your line is muted. Our next conference call.
Speaker 2: divisions..
Speaker 3: PACCAR has achieved 84 consecutive years of net income and has paid a dividend every year since 1941.
Speaker 4: In 2022 PACR declared dividends of $4.19 per share and announced a 50% stock dividend.
Speaker 5: PACCAR's fourth quarter revenues were a record $8.1 billion and quarterly net income increased from the prior year by 78% to a record $921 million.
Speaker 6: PAC-ART parts achieved fourth quarter revenues of $1.47 billion and record pre-tax profits of $380 million.
Speaker 7: which was 23% increase compared to the same period last year.
Speaker 8: TACR delivered 51,600 trucks during the fourth quarter.
Speaker 9: This was 7,300 more than the third quarter and was a result of higher truck production and the completion of nearly all the vehicles that were awaiting components.
Speaker 10: The supply chain is improving, though there may be some supplier constraints throughout the year.
Speaker 11: In the first quarter of 2023, deliveries are forecast to be strong and in the range of 49,000 to 53,000.
Speaker 12: In 2022, US and Canadian Class 8 Truck retail sales were 283,500 units.
Speaker 13: PACCARS market share increased to 29.8%.
Speaker 14: The US economy is projected to expand modestly in 2023.
Speaker 15: In this truck sector, there is pent-up demand from the prior three years of industry underproduction.
Speaker 16: and customers need to replace aging fleets to benefit from the superior performance of the newer Kenworth and Peterbilt models.
Speaker 17: The 2023 US and Canadian Class A truck market deliveries are forecast to be in a range of 270 to 310,000 vehicles.
Speaker 18: European above 16 ton truck registrations were 298,000 last year.
Speaker 19: And DoT's market share increased to a record 17.3%, reflecting the success of the new generation of DoT trucks.
Speaker 20: In 2023, confidence in the European economy is growing, and with pent-up demand for new trucks, we expect the above 16 ton truck registrations to be in the range of $270,000 to $310,000.
Speaker 21: In 2022, the South American about 16 ton truck market was $138,300.
Speaker 22: And this year, the South American market is expected to be in the range of 125,000 to 135,000 units.
Speaker 23: In Brazil, Dolph achieved a record 6.9% share in the above 16 tonne market, up from 5.7% last year.
Speaker 24: DOF Brazil has grown steadily since we opened the factory 10 years ago and makes a healthy contribution to PACCAR's global success.
Speaker 25: Truck, parts and other gross margins expanded to 15.9% in the fourth quarter, reflecting strong global performance.
Speaker 26: Higher truck deliveries.
Speaker 27: excellent parts business, and supply chain improvements.
Speaker 28: We estimate PACCAR's worldwide first quarter truck and parts gross margins
Speaker 29: All participants are now muted. Press star 6 to unmute your line.
Speaker 30: PACR and its customers realize the financial benefits of the new range of heavy and medium duty Kenworth, Peterbilt and Doff trucks.
Speaker 31: These new trucks are successful in the market due to their premium quality, excellent fuel efficiency and low operating costs.
Speaker 32: Last year PACOR earned recognition in several areas.
The new DAF XD distribution and vocational truck was named the 2023 International Truck of the Year.
Kenworth and Peterbilt earned six manufacturing leadership awards from the National Association of Manufacturers.
The reporting firm, CDP, again recognized PACCAR as an environmental leader with an Elite A rating.
This rating places PACR in the top 1.5% of over 18,000 reporting companies.
And PACCAR was recognized as a top place for women to work by the Women in Trucking Organization for the fifth consecutive year.
Demand is strong in all markets for PACCAR's industry-leading new trucks and transportation solutions.
And we look forward to 2023 being another excellent year.
Barry Skippers will now provide an update on PACR parts, PACR financial services, and other business highlights. Barry? The next group was run by the uncertainty & uncertainty control group.
Thank you Preston.
In 2022, check out parts with new records for annual revenues and profits.
Annual revenues increased by 17% to $5.8 billion.
An annual pre-tax profit increased by 30% to $1.45 billion.
Annual gross margins expanded to 30.4% from 28.6% in the prior year.
Tech apart is a high margin and high growth business.
PECCA Parts expanded its global distribution network in 2022 by opening a new parts distribution center in Louisville, Kentucky and has 18 PDCs worldwide.
We estimate part sales to grow by 10-13% in the first quarter of this year, compared to the same quarter of last year.
as high truck utilization contributes to strong global demand for parts.
Back of financial services, fourth quarter pre-tax income increased to a record $151 billion.
which is a 12% increase from last year.
Annual pre-tax income increased 35% to a record $589 million.
Portfolio assets increased to $17.2 billion.
The portfolio continues to perform well with very low past dues and low credit losses.
Stake-off financial benefited from strong use-track prices in 2022.
Last year, Pekka Financial opened a new retail use truck center in Madrid, Spain.
bringing the total to 13 USTRC facilities worldwide.
These retail used truck centers contribute to higher price realization compared to wholesale channels.
In 2023, we expect used truck prices to moderate but remain historically strong.
With its larger portfolio and superb credit quality, Becca Financial should have another very good year.
In 2022, Becker invested $505 million in capital projects.
and see under $41 million in research and development.
PECard's return on invested capital improved to an industry-leading 35.2%.
In 2023, we're planning capital investments in the range of 525,000.
to $575 million.
and R&D expenses will be in the range of $360 to $410 million.
as we invest in key technology and innovation projects.
These include next generation clean diesel and hydrogen combustion engines.
battery and hydrogen electric power trains
autonomous driving systems
Connected vehicle services.
advanced manufacturing and enhanced distribution capabilities.
TechArt's independents, Kenworth, Vuedeville and WLAS continue to invest in their businesses.
to provide our customers the highest level of service in the industry.
The conference is now in presentation mode. Your line is muted.
significant contribution to Pekka's long-term success and supporting the growth of Pekka Parts and Pekka Financial Services.
Becker had an outstanding year in 2022 and we're very positive about 2023.
Thank you. You can please answer your questions.
At this time, if you would like to ask a question, please press star followed by the number 1 on your telephone keypad. To withdraw your question, please press star 1 again.
Our first question comes from David Razo from Evercore ISI. Please go ahead, your line is open.
Hi, thank you. My question relates to the gross margin for the first quarter and how do we think about the cadence from there? So for the first quarter you have deliveries very similar to the fourth quarter. The mix between truck revenues and parts revenues seems like it's pretty similar.
So for the stronger gross margin in the first quarter in the fourth quarter is that essentially that you're shipping less red tag trucks a little more overhead absorption and price cost gets better.
And I'm just trying to think about price costs moving forward after the first quarter. Thank you.
Yeah, sure David, good to talk to you.
The way we're looking at it is the offline units that have been
Limited by supplier constraints have been largely resolved so it's fairly behind us right now, but there were some of those that were taken care of in the fourth quarter. So when we think about deliveries in the first quarter, that's basically production. That's good run rates.
we would say that our margins are doing well on both the parts side and the truck side. And that's really a factor of all of the new trucks being in the market and pretty much fully released now in Europe and North America. So the customers are getting the benefits of those trucks, as are we. And I would add one more thing, which is the strong global performance of the team, whether that's in Australia.
or in South America it's going well and that's contributing. So taking that from the first quarter then if your price and your backlog I assume.
isn't going to dissipate the next few quarters.
I would like to think some costs maybe come down as the year progresses. If that's what you're able to do in the first quarter and price costs maybe gets a little better over the next couple quarters, not worse. How should we think about the gross margins moving forward after the first quarter?
Well, you know well that we share information and we think the first quarter will be. In general, we think 2023 will be a good year.
All right, thank you very much.
You bet, David.
The next question comes from Steven Fisher from UBS. Please go ahead, your line is open.
Thanks, nice quarter. With the better than expected deliveries, to what extent are you backfilling that backlog or are you perhaps burning that backlog a bit faster than expected? I guess I'm curious how
how much visibility you have later in the year, how full your backlog is for, say, Q3 and Q4.
I think the macro way to think about it is that since 2020, the industry has really been not able to supply all the trucks that have been needed. So there is a strong pent up demand for the trucks. And in addition to that, obviously we've launched more new products at any time in our history. So that's contributing.
We have excellent visibility looking into the year. We're full through the first half, filling the third quarter nicely. Demand continues to be strong in line with build, and so it's looking like a really good year.
Okay, and just in terms of the cost and inflation side of things, I'm curious what you're seeing from your suppliers in terms of prices. Is there sort of a range that you're seeing where some of them are still raising prices, some are holding or falling? What are you seeing in... Have anybody really thought of a look at a new term here, as it SoundDroped?
for our suppliers, and all of those wash into the mix.
Okay, thank you.
You bet.
Our next question comes from Dylan Cumming from Morgan Stanley . Please go ahead. Your line is open. Are there any more questions for Dylan?
Great. Good morning, guys. Thanks for the question. I just wanted to ask the first one on the parts growth. You know, 10 to 13 percent in the first quarter is pretty admirable just considering some of the rumblings we heard in the channel with regards to truck utilization maybe being a bit more challenged, but you've obviously been getting the benefit of the MX engine penetration. Can you guys maybe pair off those two kind of headwinds and tailwinds going into the first quarter?
how much that growth is coming from MX engine penetration versus any headwind from truck utilization may be moderating a bit.
The 10 to 13 percent growth rate that we expect for the first quarter really reflects all of those things. So we continue to see the Packer engine performing really well. That of course drives incremental part sales. But the parts team is doing an amazing job launching new programs, whether it's fleet sales.
e-commerce, our MDI system continues to improve. So it also means that we continue to grow our share in the parts business. We're announcing our TFP business, adding stores, selling more parts with TFP, so it's a mixture of all of those things that allow us to do really well in the first quarter.
to improve. So it also means that we continue to grow our shares in the parts business. We're announcing our TFP business, adding stores, selling more parts with TFP. So it's a mixture of all of those things that allow us to do really well in the first quarter.
Gotcha. Thanks, Harry. And I'm going to ask the second one on the FIMCO. You know, the margin performance in the quarter really strong considering the deceleration we've seen in used truck pricing more recently. Is that disruptive of, you know, Packard trucks committing a premium in the market on a used basis? Or what would you kind of attribute that more recent strength to considering the decline we've seen in used truck prices more recently?
Yeah, we continue to see a 10 or 15% premium for Can-Worth Pee-To-Build used trucks in the marketplace. That's been around for a long time. That continues. But we also see more and more benefits of the used truck centers that we have been developing and opening over the recent years. We now have 13 used truck centers.
worldwide, allows us to sell more used trucks at retail prices instead of wholesale. So all of those things have contributed to the finance company. Like we said, the portfolio is in really good shape. Past use are low, less than one half of a percent. So yeah, customers continue to pay their bills and the finance company continues to benefit from it.
The first question is, how should we think about seasonality of bills and delivery in 2023? What is the first quarter delivery number of goods on date for the rest of the year?
Well, Tammy, it's good to talk to you. I think that what we see is we have had increasingly steady production, and that's why you're seeing this first quarter number be pretty high without any of the offline issues of last year that are behind us. So it feels pretty steady there. And I think there's opportunity for us in 2023 as we look forward.
Got it. That's super helpful. And then my second question is, how should we think about your market share gain expectation this year? Should share capture continue at a clip similar to 2022, or do you see any reason or chances of that accelerating this year?
Well, I think that our teams have done a fantastic job around the world of introducing new products over the last year and a half on the truck side and as Harry mentioned on the parts side and the financial services side. So the totality of what benefit PACCAR is providing to our customers is very high. And I think that that high benefit to them helps us grow our share.
So when our customers are successful and our dealers are successful, then we're successful and that's how we think of it.
Got it. Thank you so much.
You bet.
Our next question comes from Chad Dillard from Bernstein. Please go ahead, your line is open.
Chad Dillard, your line is open.
Hi, good morning everyone. So I was hoping you could talk about your industry view on the first half versus the second half of production cadence, just given that there are a number of crosscurrents with the card pre-buy as well as the pendulum demand. So thanks so much for independent scrapers listening and watching.
How should we think about that production level?
We as an industry have not built enough trucks for the past few years.
And that combined with excellent new trucks that provide really good operating cost advantage to our customers.
is incentive for them to continue to buy trucks.
I think that the pre-buy for 2024 is a non-issue. It's too limited and really only California.
And customers end up benefiting in most cases when we bring in new products because we bring them features and content and advantages that help them run their operations better. I think that when we think about the year it feels steady and strong throughout.
That's helpful. And then just over to your EV offering. Can you just talk about what the composition of production is for this year and then how has the passage of the Inflation Reduction Act?
Just change the conversations that you are having with customers, and ultimately how you are seeing that. That translates into your demand curve shift in production.
Yeah, I'll take a couple comments with it and then Harry or someone can add in. What we see is I think what we've shared before and it's coming through is that we think that the EV market, the zero emissions vehicle market, will just gradually grow. Customers are experimenting with it now, trying to understand it. They're buying chargers, putting an infrastructure around it.
PACCAR has nine electric vehicle models in production. Nine. So our teams have done a fantastic job of putting the products out there for customers to get used to and applications that fit.
all their needs and we think it'll grow. As we shared previously, we think it'll be in the hundreds and it'll stay in the hundreds for a little while and then as regulations come in and experiences become more familiar, it'll grow and turn into the thousands and extend from there. So I think that at the moment it's in the hundreds and we're well positioned for that growth and we have some fantastic vehicles out there that are providing.
Great experiences. Anything to add, Harry? No, I think that's spot on.
Thank you.
Our next question comes from Rob Wertheimer from Melius Research. Please go ahead. Your line is open.
Preston, you mentioned a couple times how the industry's been tight, obviously with COVID over the past couple of years and customers haven't been able to get all the trucks they want. Are you able to split that in North America at all into the straight truck category versus more fleet trucks? Presumably the Infrastructure Act will drive demand for cement and dump and things like that.
I don't know if that's happening already if you're seeing any early orders or if that's more of a 24 effect and I don't know how the fleet age and tightness on that side of the market compares with the more freight market.
Rob, as an interesting way to think about it, I think what we've seen is generally strength in both sides, truck and tractor.
Obviously there's local market impacts there, but the total general statement would be strong demand for trucks and strong demand for tractors.
I would add if anything that in the straight truck segment Packer has a market share of more than 40%.
So any growth, accelerated growth in that area, Kenworth and Peterbilt will definitely benefit from that.
Okay, great. Thank you. You touched on supplier component inflation or whatever to you earlier. There's a lot of debate or speculation as to whether the logistics costs are falling or will fall materially. Do you have any sense of the current trend for PACCAR and how that looks in the early 2023?
concerned about it for 2023.
Our next question comes from Jamie Cook from Credit Suisse. Please go ahead. Your line is open. Hi. Good morning. Nice quarter. I guess just two questions. One, I was impressed with the incremental margins you guys put up this quarter. I think 35.5 percent. I don't think I've ever seen you put up incremental margins that high. So you know.
Can you talk about how we should think about normalizing incremental margins going forward just with some of the new product introductions that are more favorable to mix versus some things that might be more one time in nature? And then my second question is just to follow up on, I know you said the order book is.
30 of backlog through the second quarter building through starting to build for the third quarter. Is that across the board in North America or Europe or if you could just distinguish between the two? Thank you.
Sure, I would, when we think about it,
The entire part of team at PACCAR is doing a good job. So our margin performance is based upon providing great trucks that are providing value to our customers.
They're realizing those benefits. They've had time with those trucks now.
And so that is effective for them and then consequently effective for Packer on the truck side. As Harry did a really nice job of outlining, the parts business growth has been strong and continues to be strong. We predict it will continue to be strong.
So that's helpful to our margins. And I also say that to kind of tie in your second question is we see strength globally for PAC-R. Europe is doing very well for us. The new trucks there, the XD, XF, XG product lines are the only trucks in the industry in Europe that are...
taking advantage of the masses and dimensions regulations which allow a different shape so that gives us a distinct advantage in Europe so the European market for PACR is strong as is understood by our 17.3% record market share we enjoyed there and I would say that Brazil, Australia, North America.
all are doing well. So there's not a single market or a single sector right now. We've just got a great team of people that have done a good job of giving our customers what they want and those products are working really well.
Okay, thank you. Nice job.
Thank you. Our next question comes from Nicole DeBlais from Deutsche Bank. Please go ahead your line is open.
Yeah, thanks guys. Maybe just starting with a question on parts, margins there continue to surprise the upside, look really strong. I guess how do you think about the ability for that business to continue expanding margins into 2023 and beyond?
Well, Harry offered some commentary on Q1 growth and said it's very positive.
One of the things that we should highlight in addition to some of the ongoing initiatives is our continued integration of Packer Parts with our customers and our dealers. I think it's a really important growing part of our business as it adds to recurring revenue strength for the future. So for us, the future looks very bright for the parts team as they bring data and capabilities into the truck, into the dealerships, and into the customers so there's a higher degree ofCLC and F Muslim, Call defeat number 363 will give us far more information then we used to, on our Chromecast
Thank you.
If you look at the range for the first quarter, we expect build rates to improve basically in all the geographies we're in.
Australia, Brazil, Europe , North America, we're going to be building more trucks in all of those areas. So it's going to be across the board.
Thanks, I'll pass it on.
Our next question comes from Matt Elcott from Cowan. Please go ahead, your line is open.
Good morning and good afternoon. So last year we saw some big monthly spikes in Class 8 orders as you guys and other OEMs opened more of the order books, like in September . Would you say order logs are open for much of 2023 and that should mean a less erratic order? Yes.
numbers month to month going forward. I think that following orders on a month to month basis is a risky thing to do and to try to get any guidance out of that because sometimes it's fleet buying season. Sometimes there's
different OEMs will handle it differently.
For us, we're taking orders in the second half. They're coming in nicely and it seems like it'll fill in 2023 well.
And just one more question, Preston. Any update on the natural gas engine you announced back in August with Cummins? Anything to report on that?
No, I think nothing else other than to say that we continue to be the leader in the natural gas offerings in North America and our partnership with Cummins is fantastic. They're doing a really good job and I think that the development of, the ongoing development of natural gas engines is something that will serve a portion of the market.
You know, they can get lower emissions than that. And so that's a part of the total portfolio of PACCAR to give our customers what they need.
Great, thank you very much.
Our next question comes from Jeff Kaufman from Vertical Research Partners. Please go ahead, your line is open. Thank you very much and I'll echo Jamie's comments. Terrific quarter. Two questions. First one focusing on PACCAR Financial. I was just kind of curious, just a big jump in assets almost 8%
would have driven the assets and PFS up so much sequentially.
Are the assets of sacrificial services for munierceupdate.com Bye.
We'll get a deal of flooring towards the end of the year.
Our share is around 8%.
56% of the tricks.
that Kenwood, Peterbilt and Duff have sold were financed by Packer Financial Services. That's about the same as it was a year ago. I think the big increase that we see in the asset growth in Packer Financial is the higher prices for trucks.
The trucks are sold at a higher price and that creates more assets for the finance company. That's also one of the reasons that we expect the finance company to continue to perform well as we go into 2023.
Okay, thanks Harry. And just real quick, I was at CES and I saw something I didn't expect, which was a fuel cell truck.
that you were starting the market. I know that's not gonna be big numbers anytime soon, so can you talk a little bit about that?
Sure, when we think about the technologies that will bring us to the future, we think ESOL will be the dominant path forward for the next several years.
But we're all trying to understand whether it will be driven by battery electric, hydrogen combustion, or hydrogen fuel cell as the capabilities for zero emissions products and PACCAR has made prudent investments into each of those technologies so we understand them so that if one brings a distinct advantage to our customers, we're ready to offer it to them. And as you noted, we had that...
passenger cells that you're using.
I think what we're doing is developing a product that's specific for the truck market, and we're doing that in close collaboration with them.
OK, thank you.
Our next question comes from Scott Group from Wolf Research. Please go ahead, your line is open.
Hey, thanks. So if you guys hold this 16-17% gross margin for the year,
it'll be your best gross margin ever. I guess how should we think about the new range of gross margins through a cycle? Meaning if in the last decade it's been 12 to 15 percent give or take is the right range what do you think the new range is for gross margin through a cycle?
You know, I think of it as Packer has an incredibly capable team of people around the world. And they're doing a fantastic job of giving our customers the trucks and transportation solutions they need. This is a really strong company. It's a growing company in all elements of the business. So we look forward to the future pretty well.
The margins will be good we think, but they'll obviously be...
but they'll obviously be what the market is.
Okay, and then –
I know there are some mixed changes with wholesale versus retail on use. Is there any kind of sensitivity you can give us on use prices and the Finko?
margins, earnings, any help you can help us with.
You struck prices have come down a little bit from the historical highs earlier last year but I would say that even at today's valuations use trucks are a very very attractive business for the finance companies selling new strokes and making profits while we do so.
Do you think Finco is a business that can grow earnings this year?
We don't guide that specifically on the FinCo earnings for the year, but I would say that 2023 will be another excellent year for the finance company.
Okay.
Thank you guys.
Our next question comes from Miguel Borrega from BNP Parabas Exane. Please go ahead. Your line is open.
Hi, hello everyone. A couple of questions for me. The first one just on your market guidance for Europe and North America. I just wanted to understand why would you not expect more growth from both markets? You know, assuming supply chains keep easing. So
what could be kind of the headwind on production for 2022? And also, why are you less positive on European market versus North America, given that your exit rates are much stronger in Europe versus the US? Thank you.
Well I think we're positive on the European market, positive on the North American market, and I think that we feel good about the year. I think that our production rates are increasing. Obviously...
we see that in the fourth quarter, first quarter production plans. And though there could still be uncertainties in the supply base, then that could have an impact. But right now it looks pretty good. Yeah, I would like to emphasize too that the supply base has been improving, but we still see uncertainties in the supply base. And that's why we have the ranges that we have for the first quarter.
on how much cash you need to run the business and how are you thinking about capital allocation going forward. Thank you very much.
Well, we have a very good history of how we allocate capital and we return excellent.
returns for our shareholders. As we noted, a 17% return last year. We pay dividends every year. That goes well for our shareholders and we use money in a smart way, make future investments in a way that's also good for our shareholders.
shareholders. As we noted, a 17% return last year. We pay dividends every year. That goes well for our shareholders and we use money in a smart way to make future investments in a way that's also good for our shareholders.
Anything you'd add, Harry? It's nice to see that the cash balance increased to more than $6 billion at the end of December . So that's really a nice milestone that we achieved. And bear in mind, we paid a nice year-end dividend.
almost one billion dollars that we paid in January . So we used the cash to make the investments that Preston mentioned, but also,
to make a nice return for our shareholders.
Next question comes from Michael Feniger from Bank of America. Please go ahead. Your line is open. Your line is open.
Yes, thanks everyone. Just two questions, one in the longer term and the shorter term.
First off, is there anything you think the industry, the OEMs learned in 2022 that is more sticky and structural in terms of managing orders, production pricing strategies, even as production bottlenecks ease and normalize? Is there anything that sticks out to you?
that could be kind of a more structural thing going forward, maybe pricing discipline with some of these more public players. Love to get any comment on that.
I think in answer to that, I think our teams do a fantastic job of working closely with our customers to understand.
what their needs are and making sure we meet their needs as quickly as possible. I think the teams, especially in 2022, did a great job of our production teams, our purchasing teams, our materials teams, and our suppliers together of producing as many trucks as we could for the customers with that strong demand. And I think that that grows a long history.
trying to work well in all market conditions and I think we'll continue with that. Understood. And just for a more shorter term question, some market participants point to a rollover in freight spot rates and this gap between spot rates and contract rates.
I'd love to know how you view that. Is that just a smaller portion of the cluster of miter bays? Does it really accurately reflect maybe the strength of a freight marker or a pent up demand? I'm curious how you view that distinction.
I think we try to take a broad look at it and think that you know freight tonnage is up over 3%, 3.7% for the year in 2022. So that's a good indicator of what's really going on out there. And as I've shared, and we've talked a lot about, I think older trucks are more expensive to operate. And with our introduction of new trucks, coupled with strong,
Ton miles being driven, that's good for PACR and bodes well for a strong year.
Thank you. Thank you. Our next question comes from Jerry Revitch from Goldman Sachs. Please go ahead. Your line is open.
Yes, hi, and good afternoon, everyone. I just want to go back to the really strong margin performance and the outlook. When we look back, when you were posting anywhere close to this level of margins, your parts margins is up significantly from that.
timeframe, you know, OEM margins are a touch lower than where they were in 2006. And I'm wondering, Preston, just earlier in the conversation, you mentioned the improved fuel economy and other features. Are we at a point where we can expect new truck margins to also be up?
versus the last cycle as well as we think about what that looks like over the next couple of quarters.
What I think I'd point you towards is the good performance of the trucks.
Kenworth, Peter Blindau have brought out trucks that are really performing well. I mean they're winning awards, they're the most fuel efficient trucks in the industry, the most desired trucks in the industry and that bodes well for our truck margins.
Okay, and then you spoke about a new approach to the telematics part of the business. Can you just talk about the revenue opportunity for PACCAR? If you can charge $20 per month per truck on your field population, that would suggest a pretty healthy subscription opportunity. I'm wondering what could the economics look like to you folks based on the partnership structure in their
PACCAR Connect system and that PACCAR Connect system is now going to be intertwined with Platform Sciences operating system and application storage. So with the combination of those it gives us an opportunity for further growth. That's one thing. I'd also say that our parts team is working closely with the data that comes from the truck. Our services team works closely with the data that comes from the truck.
all to the benefit of our customers and our dealers, and we think that will be a growing opportunity and recurring revenue.
Can you just talk about your expected economics? What do you expect to charge for the enhanced features? So for some comparable systems that are available aftermarket, they do go as high as $20 per month. Is that feasible for your offering?
I think it's going to vary depending on the customer and the suite of technologies that they take.
All right, thanks.
Thanks.
As a reminder to ask a question please press star followed by the number one.
Our last question will come from David Razzo from Evercore ISI. Please go ahead. Your line is open.
Hi, I might try to squeeze in two quickly, a little longer term and one short term. Sorry. Longer term, the idea of a pre-buy mid-decade, I am curious.
If you think about your builds for the industry yourselves in 24 being influenced
By an assumed recovery in 25 and 6, you know, the pre-buy before the 27 models are out in sort of spring of 26.
Just theoretically, should that provide a higher floor?
should that provide a higher floor to 24 builds?
because of we've seen in the past obviously some of these prebodies get well ahead of supply. Is that being too cute thinking about 24 builds, whatever macro view someone may have that they can be influenced?
by a somewhat assured some sense of a pre-buy in 25 and 26, and then I'll be quick on the near-term question, but if you can answer that. David, I'm gonna let you work that. That's not how we are looking at it. We just think about the product we're offering, the benefit to the customers, and...
making sure that we're the leader in the market with those products. So how the market... Are there conversations with customers about... Oh yeah, of course we do. But the market will be in 24 and 25 I think is beyond this call.
Okay, and then real quick on the near term, the gap between use and new prices on tractor sleepers is getting obviously a lot wider than it was six months ago. How does that usually manifest itself? Is that more about...
you know, maybe residual values getting marked down a little bit on leases. Like, how does that usually begin to flow into your business model when you see the gap between your used tractors and the new prices widening the way it's been the last few months?
David, I would say that both on tractors and sleepers.
Packard Financial does really well selling those trucks at premium pricing.
And it's part of the success of the company that we build trucks that get a premium, whether it's in a new truck market or in a used truck market. And benefits the finance company and it best fits the truck divisions as well.
All right, thank you very much for the time.
of time. Yeah, you bet.
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We'd like to thank everyone for joining the call and thank you operator.
Ladies and gentlemen, this concludes PACCARS earnings call. Thank you for participating. You may now disconnect.
This concludes PACCARS earnings call. Thank you for participating. You may now disconnect.