Rush Enterprises, Inc. (RUSHA) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Rush Enterprises Reports Fourth Quarter 2024 Earnings Results. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Rusty Rush, Chairman of Board Chief Executive Officer and President. Please go ahead.

Well, good morning, everyone. Thanks for joining our fourth quarter and year-end 2024 conference call. I have with me today, Jason Wilder, Chief Operating Officer; Steve Keller, Chief Financial Officer; Jay Hazelwood, Vice President and Controller; and Michael Goldstone, Senior Vice President, General Counsel and Corporate Secretary. Now Steve Keller will say a few words regarding forward-looking statements.

Certain statements we will make today are considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Because these statements include risks and uncertainties, our actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, those discussed in our annual report on Form 10-K for the year ended December 31, 2023, and in our other filings with the Securities and Exchange Commission.

As we mentioned in our news release, we had $7.8 billion in annual revenues for 2024 and our net income was $304.2 million or $3.72 per diluted share.For the fourth quarter, our revenues were $2 billion, and our net income was $74.7 million or $0.91 per diluted share. We are also happy to announce a cash dividend of $0.18 per common share. 2024 was a challenging year for the industry, which faced persistent headwinds, including the ongoing freight recession, high interest rates and economic uncertainty. These factors hit over-the-road carriers hard, leading to weak demand for new Class 8 trucks from that customer segment; however, our strength in public sector and vocational markets helped balance things out, and we managed to hold our ground in a tough Class 8 market. Our Class 4 through 7 truck sales were strong across various customer segments, and we outperformed the market in the medium-duty truck sales. The used truck market remains challenging, but we continue to execute well on our sales strategy, and we're able to deliver strong profits. The same challenging operating conditions that impacted new Class 8 truck sales also impacted the aftermarket industry, but our sales force's dedication to our strategic initiatives helped us to slightly outperform the industry despite a difficult operating environment that we faced in 2024. I am very proud of our financial results. Focusing on the aftermarket, our parts, service and body shop revenues were $2.5 billion last year, down 1.8% from 2023. Our absorption ratio was 132.2% compared to 135.3% in 2023. Even though our aftermarket revenues were slightly down, we grew our market share by expanding our national account sales force, which allowed us to enhance our service to large strategic accounts. Demand was sluggish really over-the-road, energy and wholesale customers, but we saw strong sales to vocational, public sector and medium-duty leasing customers. In 2025, we expect aftermarket demand to remain soft in the first few months due to the freight market continuing to struggle, which results in lower over-the-road fleet utilization rates; however, we are optimistic that, that demand will pick up as the year goes on and the freight market improves. And we believe that our focus on growing our national account customer base and our other aftermarket strategic initiatives will result in revenue growth this year. We are also committed to expanding our technician workforce in 2025, particularly mobile technicians, which will allow us to reduce vehicle dwell time in our shops, better serve our customers, increase back counterpart sales and grow market share. Regarding truck sales, we sold 15,465 new Class 8 trucks in 2024, down 11.4% year-over-year, representing 6.1% of the U.S. market and 1.7% of the Canadian market. Market conditions were tough with high inventory levels and competitive pricing. However, our sales to specialty market customers helped offset weak demand from our over-the-road customers. ACT Research forecasts U.S. and Canadian sales of new Class 8 trucks to be 277,200 units in 2025, basically flat with 2024. And we expect sales to be challenging in the first half of 2025. We anticipate that demand will improve in the second half of the year as freight rates recover. In addition, despite uncertainty around engine emissions regulations, we believe the EPA's clean diesel regulations will drive some prebuy activity later this year. We are optimistic that pre-buys along with strong vocational sales will allow us to achieve strong new Class 8 truck sales and keep pace with the market in 2025. Our Class 4 through 7 new truck sales were up 5.1% year-over-year with 13,935 units sold in 2024, representing 5.3% of the U.S. market and 3.1% of the Canadian market. Medium-duty vehicle production has stabilized and delivery lead times improved throughout the year. Our strategic focus on diversifying our customer base and focusing on large national accounts paid off, and we outperformed the market in new Class 4 through 7 truck sales. ACT Research forecasts U.S. and Canadian sales of new Class 4 through 7 trucks to be 282,250 units in 2025, up 5.3% from 2024; however, supply has caught up with demand, and we believe the medium-duty market may begin to slow in 2025. Nevertheless, we believe that our expertise in the medium-duty sector and our ready-to-roll program will help us achieve strong medium-duty commercial sales in 2025. We sold 7,110 used trucks in 2024, basically flat year-over-year. The used truck market was challenging due to values continuing to fall and tight credit, but our disciplined inventory and pricing strategies helped us deliver strong results. With freight rates showing signs of improvement and used truck values stabilizing, we are cautiously optimistic about 2025. Leasing and rental revenue was $354.9 million, basically flat with 2023. Our Rush truck leasing division continues to be a key contributor to our overall performance. While rental revenue was slightly down in the fourth quarter, leasing revenue increased as we replaced 1,500 units in our fleet. At the age of our leasing and rental fleet decreases, we should recognize higher revenue and lower maintenance and operating costs going forward. We expect our lease and rental business to remain strong in 2025. I wanted to remind everyone that due to seasonal increases in employee benefits and payroll taxes that occur in the first quarter of every year, we expect our G&A expenses to be sequentially higher in the first quarter of 2025 compared to the fourth quarter of 2024. Lastly, I want to make a final comment on the proposed tariffs that may impact vehicles and component parts manufactured in Canada, Mexico or China. We are currently monitoring this situation closely. If such tariffs are enacted and significantly increase the aggregate price of new commercial vehicles or parts, we believe the demand for new truck -- new commercial vehicles and parts could decrease in 2025. Before we wrap up, I want to thank our employees for their hard work and dedication in 2024. Despite the challenges, they stayed focused on our strategic initiatives and expense reduction goals, helping us achieve strong financial results. With that, I will take your questions.

[Operator Instructions] And our first question comes from the line of Andrew Obin of Bank of America.

Excellent. Rusty, given your commentary about second half recovery, how should we think about earnings seasonality in '25 versus a normal seasonal pattern? And I'll just throw in, and specifically, when does parts and service turn positive again? So a 2-part question.

No, Andrew, it's going to be an interesting year. The first half of the year, we're still seeing the lingering effects of the freight recession, okay, without question here in the first quarter. We do expect though -- but we are seeing signs of activity, right? Regardless of what the numbers showed like in December, then the order numbers were down in January. We are seeing in the last few weeks, signs of activity that don't tell me that we're going to get better in the over-the-road business in the back half. Vocational businesses are still strong, but we believe that you're getting -- I think if you check with the large over-the-road guys, they're starting to get low single to maybe up to try to get maybe to mid-single digits on the contracts that are coming up. So that has to take hold, right? That has to take effect, right? And it just doesn't happen overnight. But it shows -- it breach confidence in the over-the-road carriers and the fact that, okay, we are -- we for sure bottomed out in the back half of last year like we talked about. We talked about it prior. Well, now we started getting confidence going forward and where we're at going on into later in this year. And then I'll talk a little more in a minute if someone would like me to, about what we see when it comes to the government regulations and all with everything up in the air right now. But I do believe -- I'll get to the parts and service here in a second. I do believe that when you ask about what the year is going to look like, the year is going to ramp up from the beginning to the end, okay? -- a tougher start. But I do see and believe that by the time we get into the back half of the year, we're definitely going to be on the upswing again, when it comes to -- I looked at the overall deliveries in retail in the U.S. in January were down 2,000 units from last January. So I think it's only a couple of thousand, you are starting being a little softer in January from where you were last year. But we do firmly believe that the back half of the year will continue to ramp up. And I think that you're still -- it's hard to talk about pre-buys and all because we got too many regulation uncertainties out there, which I don't mind getting into if someone would like in a minute that are still to be -- still -- we got to figure them out. We've got to see what the government does right after the administration. He is only been in office, what, 30 days now, the new administration. And obviously, I don't have to tell everyone that there's a lot of uncertainty as to how a lot of things, whether it's tariffs or EPA regulations or any of this stuff are going to shake out right now. We've got thoughts about it. We're not sure. But I do believe that overall, it's going to be a ramp-up throughout the year from beginning to end, maybe with a better close than what we had in '24. That would be my plan. The back half will definitely should be stronger than the '24 back half, front half. We're just got to work our way through it. Look, we had to work last year extremely hard. If you remember, I always called it hand-to-mouth man. We were back in normal regular times where you could get -- you didn't have allocation, right? You were working to get trucks and you could get them in 60 to 90 days. Well, guess what? That's still the environment we're in right now. From a parts and service perspective, it goes right along with what I see from -- when I talk about where we -- it goes right along with truck sales, to be honest with you, ramping up throughout the year. I do think we may get a little bit more inflation, which will have -- can have sometimes a positive effect on parts and service totals when you get through them all, but we'll have to see how that all shakes out again. But we do believe that it will ramp up. We will get up into maybe not the first half of the year, like I said, the first few months, fairly flat, but ramping up to mid-single digits and growth when we get into the back half of the year is how I'd look at it. You want to do more. But right now, I don't want to get -- I want to be conservative in my outlook. I'm not wanting to really get out over my skis too far if you know me for 28 years. So -- but we have confidence that we'll be all over the market as it begins to ramp back up, and we'll continue to drive. We've still got -- there's still runway left in a lot of our strategic initiatives, and we're always working on others at the same time behind the scenes. I mean I talk about. So anyway, that would be my take on the year, and it's pretty similar on both sides ramping up, especially once we get settled out with all these uncertainties that are out there right now.

And just a follow-up question. As things ramp up, how should we think about SG&A was one of the sources of upside in the quarter, how do we think about SG&A control as you ramp into the next cycle? Will it look similar to the prior cycle? Or are there any incremental savings as you get efficiency? And that will be it for me.

There you go put the heat on me on G&A. Remember one thing, S is S. S Is directly tied to sale of trucks, okay? So we run the business off of G&A. Our ask is going to be in that 25% range or so all the time related to the gross profit of trucks. The G&A piece is what we manage on a daily basis. I mean, you can look back at -- that was a big contributor this last year, big contributor. We were down almost 5%. We were down 4.9% year-over-year in Q4. And if I'm not mistaken, it was similar like 7% in Q3, and it was sequentially -- we were sequentially flat with 3% and 4%, but 3% was down like 5.2%, if I remember right, over 2%. So we did an outstanding job from my perspective in managing that G&A. As it ramps up, as you ramp up parts and service, it's not like loading cash and loading money to someone. It does come with a G&A expense. And our goals will be to try to keep gross profit dollars recreated on the back end, we're going to try to keep 40% or so of that. I've got a goal to keep 50% or more. But typically, it averages out. If you go in the ramp-up period over a 3-year cycle, it will average out in that 40% range, 50% because we're handling parts. We're doing this. We're doing that. We're working with whole goods, right? So it takes people to do all that work. But that's a great situation to be in. And if we can stay close to that 50% number in a ramp-up period, then I will be very happy about it. And we'll continue -- we're looking for that, okay? I'm looking to get back. We were 135 down to 132 in absorption. And that's a direct correlation, obviously, with gross profit on parts and gross expenses. We lost some gross profit last year, but we managed our expenses well to keep it that tight of a number to produce a year like that, when you're going negative on your parts and service, that's not easy, okay? So I would expect us to even do a better job. I'm not going to get into specifics as to why I believe that. But the world continues to evolve. E-commerce continues to evolve, which actually helps when it comes to expenses. It's not all the way there, but it's only going one direction. So always we should be able to do business, hopefully, cheaper, okay, in the future. It's not all the way there yet. We're in the truck business. We're not in the most highly technical business in the world. So -- but it is evolving. And I think there will be opportunities for us to take some of that normal what we see in expenses when the cycle ramps up. Hopefully, we'll be able to take some of that out with technology as we move forward. It's not ever going to go all the way. But at the same time, we ought to be able to do a better job of trying to squeeze those expenses. But it's still -- we still have 390 outside salespeople, right, on the parts and service side. So they're not going away. But business -- I can see a shift in our business. Now this is over a longer period to -- it continues to shift right now more towards e-commerce, et cetera, et cetera, which you would hope you can take some costs out, but it can also bring in -- make it a more competitive landscape, too. So there's hang there that you've got going with it. But I know I'm giving you a long-winded answer, but you're used to my long-winded answers. So trust me, we'll -- I think we'll do a better job on G&A and the ramp-up than we have.

Our next question comes from the line of Daniel Imbro of Stephens.

This is Brady on for Daniel. Rusty, I wanted to start by asking about your different end markets. You've talked about how resilient vocational has been for you in recent years. How did that market end the year? And while we've talked about how Class 8 fleet sales will probably likely take until the back half to recover, how are you thinking about that vocational side of the business in 2025?

Okay. Yes. No, we believe it will still remain strong. I mean we haven't seen -- I would say we're starting to fulfill some of that, but there is still strength in vocational. I mean in our construction business, I could possibly see -- believe in saying this, a little more in the oilfield pickup, which we haven't had to help offset anything else. The refuse business is still strong in 2025. So I mean, I see the vocational remaining strong, maybe not as deep as big a backlog right at the moment, but still strength in demand, right? So -- because you had a you had a transmission issue for a while a year ago that actually pushed and we weren't able to get to all of it. Now we're chewing away at that, but we still got good demand. And you never know, like I said, it's crazy for me to think with oil and gas, what the last 4 years, that was a bad word. But obviously, with the different administration there, you're seeing some activity around that sector, too, which we haven't had. So I feel pretty good about it. Again, though, look, we're not backlog. You can build yourself in 60 days if you want it, okay? It's not like we've got these huge 1-year backlogs like we had in '23, okay? That's not the case at all. So there's no such thing as allocation. There's plenty of opportunity to build trucks out there right now because most factories, I don't believe are running at full tilt at the moment. I mean they're running -- shutdown days and things like that, but they could ramp up build if demand came in line, which is something -- remember, in this industry, when demand hits that over-the-road side, it happens fast, and it happens really quick. So as we get into the back half of the year, I wouldn't be surprised to see -- I'm not going to call for allocation in '26 yet. But I could see it getting there. A lot has to do with regulations and things. But back to your original question, vocational is still strong. And so we feel good about it.

Okay. Great. I wanted to switch gears a bit for my second question to see if we could touch on medium duty. Medium duty has been very strong for you guys in recent years. Can you just talk a little bit about what's driving that strength and what you're expecting from medium duty in 2025?

Sure. Well, what drove that strength now? Listen, we went into the year, medium-duty was -- had a big backlog, right? They shoot away at it. It all happened. You have to go back when we had supply issues in '22 and '23 because manufacturers that build both medium and heavy chose to take componentry and put it towards heavy because they make more money on it. Well, that gave the medium duty -- we -- so you had pent-up demand. Medium-duty was really stretched out. They weren't running as fast and hard to manufacturers that do both. Well, guess what, once Class 8 slowed down last year, they chewed out the medium-duty backlog. So medium duty right now is just like Class 8, I can give you on 60 days, okay? It's not that hard to get a medium-duty truck at the moment. So while we expect -- I mentioned in the call, I know that ACT has medium-duty up 5-something percent. Kenny is a great friend of mine. I'm not sold at all that right at the moment for '25 and beyond. That's just a personal opinion. But I do expect we're going to have a good year. We've got some -- I know in the back half, we've got some good stuff in the fourth quarter, but that's a particular transaction. And -- but we're still -- should remain -- I expect to be flat, if you want to know the truth in medium throughout the year. That would be about where I would think our medium duty. So that's strong. Like you said, we've had strong results. I expect to remain strong. Is there a lot more to get this year there? I don't think so. I don't see it right now. But because we caught up with that pent-up demand that was created by medium-duty not being the focus, but Class 8 being the focus of the supply side, the supply side is caught up. So medium duty is caught up. So -- but there's still good demand out there. It's just you don't have these pent-up big backlogs like you used to have. So I hope that sheds a little color on it. So I -- personally, I'm thinking it's going to be probably flat. I think both sides -- but I do expect to be somewhat backloaded, okay, especially in -- I'm not sure about medium, I can say that for sure. But for sure, on the backlog in the back half back to the 8. That's what we talked about ramping up, hopefully, ramping up throughout the back half of the year. And medium-duty, probably pretty constant through the year, but looking at a flat year-over-year.

Go ahead, Rusty.

No. I mean, as I said, and I'd like to -- I'll talk about it in a minute, there's another call. I -- I'll ramble on here in a minute about some of the uncertainties and things that are out there that will really dictate the year right now. But I have confidence in the year, but there are things surrounding our environment, just like there have been in the last 30 days that we're all waiting to get clarity on. So which regulations, tariffs and all that wonderful stuff, which can create a little bit of hesitation for folks out there. But I did say, as I mentioned earlier, we're seeing some activity better in the last couple of 3 weeks in spite of all the nonclarity. It's not real clear to me outside of the uncertainty about where rules and regs and how things are going to fall out here, which have a very direct correlation on the decisions that the business people make inside their truck businesses.

Maybe if I could just ask one quick final one. You built a lot of cash on the balance sheet in recent quarters. Can you just talk about uses of cash, Rusty? Are you seeing anything in the M&A pipeline? Kind of what are you seeing there for 2025?

Well, M&A is always my first option to spend money, right? We have a committed for 7, 8 years, 9 years, we've committed to return 35%, 40% back to shareholders, which we've been doing. Some years might be 50%, some might be 30%. It just depends -- we try to be opportunistic in repurchasing. We've been consistently raising our dividend 8%, 9%, 10% or somewhere in that range. We raised it in the dividend in the second in Q2. We take a look at it. yes, we're in pretty good shape. And I've got -- for your information, we redid all our credit lines in December and got a 5-year run on all that, that has got us set up if we need -- we can we can pull cash. We got good cash on the balance sheet, and I have great structure to get cash if needed quickly. So we're set up to do M&A. We've got to find it right. And trust me, that responsibility falls on me. And I probably need to get -- find a couple of deals that do work for us. I don't have anything imminent. I wouldn't tell you if it did. So -- but I mean, I say that, I always looking at am I talking to other people, you better believe it. But there's nothing huge. There's some small deals. We've added a store up in Nebraska, a couple of stores in Nebraska back in the summer, really haven't added anything to the greenfield since a couple of greenfield places. But yes, I'm always in conversations. But as I said, even if it was imminent, I probably wouldn't tell you. So that is the first choice of cash. And then the second choice is to return to shareholders. We didn't repurchase as much last year as we did the prior year. But understand our approval is -- we approved it on the 1st of December. So when I look at what we repurchased last year, I throw in a $65 million repurchase that we had in December of '23 and really after that prior, when we approved, we approved a new $150 million every 1st of December. So we are repurchasing currently. Every day, we do 10b5. So we repurchase it quite very consistently all the time right now. So I would expect that our repurchase unless I spend it on M&A, will be more than the calendar year '24 should probably end up being more -- I'm pretty sure will in 2025. Because we still believe outside of giving -- handing shareholders a dividend, but repurchasing our stock is a clear direction from management and the belief in this organization. And we've shown that throughout the last 8 or 9 years, consistently doing it, and we will consistently do it and continue because I still believe we're a great value, and we've got a lot in front of us. And there you go, there's your cash answer.

Our next question comes from the line of [indiscernible] of UBS.

It sounds like you're interested in talking about some of the policy uncertainties, so interested in unpacking some of that. So starting with the emissions regulations and the engine changeover? What are the latest conversations with customers looking like around the prebuy. Are you hearing any more uncertainty or less?

Yes. Well, I mean, it's interesting, right? Because you got to know a map, right? When you go some place and you're going into unknown territories, it's always good to have a map where you're going. Well, we thought we had a very clear map as to where things were headed as clear as mud is anyway as to what was going to happen and what happened in '24 in California, what was going to happen in '27. Well, the new -- and I go to -- I'm going to speak like I'm a customer because I am a customer, okay? I'm the middle guy. I am a customer also. So clarity, not right now. If you look back in the last -- back in -- prior to the new administration coming on, ACF, what clean trucks, that was for our customer base, they were going to have to roll in electric BEV trucks and stuff over a time frame. That was thrown out, okay? Right now, as of last Friday for Valentine's Day, the EPA is challenging ACT or clean truck, which affects all the OEMs. which is how they're going to have to sell this many electric can do this much, all these rules and regs. I'm not going to get into all the detail or I got a lot of -- I got 3 or 4 people on my staff that are way more intelligent about it than I am. I know just enough to be dangerous, okay? So that is up in the air because it got approved outside of Congress, they're saying it should have been approved in Congress. So they're taking it to Congress. Now how it all sorts itself out, that's the new administration, which is obviously totally different than the prior administration, okay? They're promoting big promoters. -- while still -- we understand there's an environment issue, but they stay with carbon fuels for longer, right, while we still work on the technology piece, which in truth is the right thing. So I don't know how it's going to shake out. I don't expect the diesel emissions regs that are in place to go into place in '27 to change. I think it could line up. You had a 0.2 and 0.035. I personally think -- I could be wrong, they'll probably end up settling and this is just my personal opinion and aligning it at 0.35. Well, that's still -- you've got to clean it up more, okay? Remember, we're just talking about diesel. It's still diesel. We're taking the BEV piece and taking the electric piece and pushing it out. That's what's going to happen. Taking some of your greenhouse gas stuff and which is tied to the BEV in 2030 and all these other years, I expect all that to get stretched out. That's my opinion, okay? I do expect the new rules and regs around diesel to stay. Now are they going to stay in the same context the way they're written now where you've got these huge long warranties on after treatment that have never existed. They take up a lot of the cost. You're talking -- nobody has really given a price of that. They're like all manufacturers, all manufacturers wait and then surprise you. But we're talking about $15,000, $20,000 with after treatment. Now a lot of that is around -- is written because of the warranties. Could those change? I hear rumors all the time that they might change a lot of that cost. So that would change some of the costing of it. I don't know that it will or it won't. But all those types of issues are what are going to be vetted here pretty quickly. We are still, -- we've been cleaning diesel up for a long time. I mean, go back to 1988, 60 -- I say 60 trucks today produced what truck produced back then when it comes to NOx and things like that. That's a crazy number to me. We cleaned it up in '04. We cleaned it up in '07. We cleaned it up in 2010. So we're going to clean it up again. I don't -- but we're going to slow down what those numbers turn out to be, what those warranties, I can't tell you yet because that was Friday, it was happy Valentine's Day. They just announced the EPA did that they're going and try to run this all back to the Congress. And -- but the OEMs have spent way too much money on this after-treatment stuff preparing for this. So I don't see it going away. That's just my -- all we're doing is cleaning up diesel man. We've done it a lot. We've done it for decades, okay? So there's nothing that's the right thing to do. The right thing to do is to do that, push out some of these BEV requirements because they're way ahead. I mean, look, we got 100 -- I'm sorry, I'm just talking plain. We got 120 years, 120 years of infrastructure around internal combustion. And we're going to change it in 6, 7 years, give me a break, okay? We don't have the grid. We don't have the infrastructure. There are so many -- is it the right thing probably to do long term? Yes. But also doing it with automotive is different than trucks. Trucks do so many different applications. You want a car does? I don't care if it's a Kia, Ferrari. It goes from point A to point B, okay? That's what a car does. Trucks, I don't care if they're picking up garbage, pouring concrete, hanging signs, the oilfield over the road, they do so many different applications that I expect it to be a multipronged answer when we get there, but to get done and get done in this shorter period of time. So there you get rusty scrapping on your own thoughts. We'll get it done in 20 years. We'll get -- BEV will be more. BEV will be for a lot of applications around town and this that and the other. But we don't have the necessary components, I mean, I use this in my simple way, some people think it's like plugging in a hair dryer, let me say so. It's not, okay? It's way more complicated than that because of the grid and infrastructure and everything else. We can't even catch up on the cars, right? And automobiles will be way easier to do than trucks because of all the different applications. So you're getting a long rambling answer, as I always say, but I expect we're going to go through with the diesel changes, they could tweak them, but if we could tweak the warranties. But we're not going to change and flip the diesel switch again in '27 because there's been too much spent, too much prepped. We will go through in some form or fashion. But what will happen is the other stuff will get pushed out to give our industry's time to refine the technology and the things that are needed to do it properly, okay? We're not there, man, and to do all what we were trying to do. I get -- I understand we got to do a better job cleaning the environment up, but we got to do it within the bounds of reality. There's the answer. I think there will be a prebuy. I don't know how it will all shake out to how much because any time you come with new after treatment and stuff, boy, do I remember 2010, okay? Everything was called this DPS clogged everywhere, et cetera, et cetera. I'm not saying that, that will be the case. But I'm saying there are always issues -- we'll be dealing with issues with all the new diesel technology, which is typical okay, when you do things like this, that's how it works. But it's something we could work on and do something we've got 100-plus years dealing with, right? So we'll figure all that while behind the scenes, we do the right things to get into these other technologies, whether it is -- not everything is going to be electric and hydrogen and fuel cell and all this other -- while that continues to progress. And then it will take its place over the next 20 years.

That makes sense to me, and I appreciate the perspective there. Shifting over to tariffs. So I know you noted that the uncertainty around that and the prospect that it could really increase the price of trucks and squeeze demand. So I guess 2 things there. One, could you help frame for us what that impact to be on the cost of a new truck? And also with the uncertainty, are you doing anything differently this year in terms of managing your inventory to try to mitigate that risk?

Well, first off, about 17 days ago, maybe 18, on a Saturday, I'm going, are you kidding me? -- check, we're really going to put 25% tariffs on Mexico and Canada. I understand the Chinese part, but the automotive sector, and I'm not just talking trucks, there is nothing more tied to Mexico than the automotive sector, okay? I mean all the suppliers, all the manufacturers, everybody has got plants down there and stuff. And it's like you got to be kidding me. I understand -- I don't understand Fentanyl, but I read about it, and I understand the immigration issues. But you're messing with an economy now, let me tell you. You're talking if it's manufactured down there, you're talking $30,000, $40,000 in a truck. And even if trucks that are manufactured in the U.S., they'll have components free in them. If you put a 25% tariff on there, that'd probably be another $10,000. Automobiles will be $6,000, $8,000 depending on who and where and what. I mean because it's always -- remember, the devil in the detail in the fine brand, right? So I'm not the expert on all of that. But I got to tell you, that makes absolutely 0 sense to me. I believe I've told everybody since the new administration was announced back in November that it's a negotiation. I cannot believe that we would go do that. those factories, it's not like China. Those are our factories. I'm on the border. I there on the board. I'm born and raised in Texas, okay? I have the whole border for Peterbilt all the way from Tijuana to Brownsville. I understand -- we built those maquiladora plants back in the '80s, okay? They're our stuff and more and more and more, I cannot see doing that. I just truly can't see -- we own them. It's not like stuff you buy from China. We own those factories, okay? It just makes absolutely 0 sense to me. We need a strong solid neighbor on the south. And it's just a labor issue. We build all that stuff down there, but it's all our stuff. So it really doesn't make any sense to me. Would there be disruption? Yes. Is there something I can do? Well, first, somebody tell me a date, I got 2 weeks, okay? No, I can't do anything in 2 weeks. We would just deal with it. But you talk about triple and -- you got to realize like Laredo, Texas, that's the biggest port in the United States. I don't care about these ocean ports. There's more freight coming through out of Mexico than the EA. I'm on I-35. I look at my window right now. Over half the vehicles are trucks going up and down the highway, okay? And it's all for manufacturing that goes on in the South. And I don't know we'd come up with a workforce to do it all anyway as we work our way through it. But I'm getting into my own personal views here about all that, but you're going to know because I don't mind telling them. So it just makes no sense to me. I've got to believe it's safer rattling and negotiations. Maybe there will be some hand slaps and things like that on the risk or something. I'm not close enough to the government to really know what they're thinking. But I don't see doing that with your 2 bordering neighbors, one to the north and to the south, the only ones you border, okay? I don't -- I have a hard time making sense out of that personally, especially when we built it all, okay? So I think we drove all that ourselves. It wasn't driven by over -- did people have plans? Yes, OEMs have contingency plans around how they would get around it, but it would be costly and it would be cumbersome to implement and take time, for sure they do. OEMs are thinking about it. They have to -- I have to, yes, I thought about it. But I have a hard time believing we're really going to do this with Mexico and Canada. That's just my opinion. I could be dead dead wrong. But don't worry that we've thought about it. We're behind the scenes. Yes, there are plans as to what we would do, how we would react. I just have a hard time believing we really do it.

That makes sense. I guess moving a little bit away from the uncertainty or uptick towards what we're seeing today. So I know second half of last year, there was a bit of discounting on new truck pricing. And so just wondering if something that we should be expecting here for the first half of '25 as well?

No, I expect most of the stuff that we're doing right now is pretty flat. Slight -- I mean slight maybe increase. I don't see a lot of discounting, maybe a one-off deal here or there, but there's not broad-based discounting going on. I mean we've already taken margin out last year, okay? Some when I say that the manufacturers and through us, and we've managed to maintain a good blended margin. That's what I always tell folks. Remember, we don't sell just heavy duty. We sell medium, we sell used. So we've done a pretty good job I'll keep it over 9% or better blended margin. So was new compressed a little bit? Yes. Do I see it getting compressed a whole lot more? No. I think we'll be pretty -- we've already been a little bit compressed on it. So I don't -- I think most OEMs what we've been planning on having a prebuy, right? So they were trying to maintain what they felt. And you can look at their margins are off some. You can look at it later in the back half of last year, there's no question. But I don't know how much more there is to take out of that. I think there will be enough demand to keep things pretty flat, to be honest with you, without getting any increases in anything either. I expect everything to stay pretty flat.

I'm showing no further questions at this time. I would now like to turn it back to Rusty Rush for closing remarks.

Okay. I guess I look forward to talking to everybody in April. This is the shortest time between calls, talk to everybody in about 2 months, and thank you for your participation today.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.