EUR 850.00 For Business Accounts Only

Morningstar | Strong Heavy-Duty Truck Demand Extends Into 2019

Rush opened its first heavy-duty truck dealership in Houston in 1965, where it sold only high-quality Peterbilt trucks, a Paccar brand. Over several decades, management amassed a 100-dealership empire across the U.S. in an integrated format that sells, leases, and services trucks. This empire helped Rush increase its market share of new Peterbilt trucks from 14% in 1996 to 37.4% in 2016. Despite the dealership’s leading position selling a premier brand, management realized that the success of the company’s operations was highly correlated to that of Paccar's. To mitigate this concern, Rush diversified its business beyond Peterbilt to include other heavy-duty manufacturers and expanded into medium-duty truck sales. Moreover, Rush augmented its dealership network to include additional ancillary services, such as compressed natural gas fueling stations, tire service and body repair. In our view, management’s diversification efforts have proven to be moderately successful. The company’s wide geographic coverage, number of dealerships, and array of services has positioned the company to sell to a wider variety of both small and large fleet carriers than its peers. In fact, today, Rush sells around 5% of U.S. Class 4-8 trucks, making it the largest commercial vehicle dealer in North America. Additionally, the company has reduced both its Peterbilt and heavy-duty truck exposure to around 37% and 40% of sales, respectively, from 53% and 60% in 1996. Although these diversification efforts have reduced Rush's exposure to Peterbilt, the company remains dependent on Peterbilt sales and vulnerable to highly cyclical commercial truck demand. Therefore, we believe that, to increase long-term shareholder value, management should fine-tune the company’s operations for its numerous acquisitions and better position the parts & services operations to mitigate future downturns.