Earnings

Rush CEO Says EPA Delay Has Truck Orders Stalling, Expects A Fix In 60 Days

Rusty Rush says customers are waiting on 2027 engine rules and pricing, and expects orders to return "hard, fast, and big."

New truck quotes and orders have slowed because customers are waiting on the EPA's 2027 emission rules and manufacturer pricing, Rush Enterprises CEO Rusty Rush said on the company's third-quarter earnings call. He called it "largely just a timing issue" and said underlying demand remains healthy.

A rule still in draft

Rush, who runs the dealer, said the EPA issued a draft in July that would let engine makers keep selling old engines if they pay non-conformance penalties, or NCPs. He put them at around $6,700 for heavy-duty engines and $4,400 for medium-duty, plus federal excise tax on the heavy-duty engine. The alternative is new technology that meets the tighter nitrogen-oxide limit.

He had heard a final decree was coming in November but said he now hears it may slip. The industry may be told to work off the draft until January or February, he said, though the rule is set to take effect January 1. Customers, he added, would likely lean toward paying NCPs and testing the new engines before committing.

Manufacturers are splitting. Rush said PACCAR is "all in on NCPs," while Freightliner is going with new technology right away. He said he had never seen an EPA rule where it wasn't the same for everybody on one particular day.

Why he expects a rebound

Asked by a Wolfe Research analyst why he thinks the slowdown is temporary, Rush said he expects pricing and technology to be sorted out within the next 60 days. When orders pick up, he said, they will hit "hard, fast, and big." He pointed to an aging customer fleet and customers' need to replace trucks.

Backlog gives him visibility into a strong fourth quarter and first quarter, he said, though supplier shortages are stretching out some deliveries across all manufacturers.

A strong quarter behind the caution

Rush Enterprises runs Rush Truck Centers, a network of commercial truck dealerships that also earns money from parts, service, leasing and financing. Third-quarter revenue was about $2.1 billion, up 12.4% from a year earlier, and net income was $78 million, or $0.65 a diluted share, up 18.2%.

The company sold 3,880 new Class 8 trucks in the U.S., up 24.4% against industry growth of just over 10%, for a 6.5% market share. It declared a quarterly dividend of $0.14 per share and ended September with $226 million in cash.

Rush said the next earnings call will come in mid-February.