Wednesday, January 11, 2017

Fire Apparatus Manufacturer Consolidation - an overview

In 2016, two major fire truck manufacturer mergers were announced.

This is only the beginning of a wave to impact the future of fire apparatus manufacturers.

Why the consolidation is inevitable

Most industries are dominated where 2 or 3 companies have about 80% of the total market. (For the only industry that defies this trend, see below). The reason is that the manufacturers must get more efficient to sell to a consolidating fire service.

Although economic theory says that there will always be a unlimited amount of providers for a set of customers, the reality is that providers are limited due to:
  • High start up costs - it takes a lot of money to start a fire truck manufacturer which limits new companies
  • Lack of capital - It's extremely difficult to get the money to start a new apparatus manufacturer
  • Regulatory burden - NFPA, OSHA, DOT and other rules certainly make a fire apparatus more safer and efficient.  But these requirements raise the cost of manufacturing the trucks.
So, while the fire apparatus industry has historically had (arguably) 6-10 major manufacturers, the trends are clear that further consolidation and mergers will happen.

In the next 2 weeks, we'll discuss the pros and cons of a consolidated fire truck industry.

Summary

The fire apparatus manufacturer industry is following a normal economic trend.  The fact that it has resisted this trend for so many years is remarkable.

Answer:  The only industry that defies the "big 2 or 3" is the pizza industry where most pizza is sold through small, independent businesses.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, December 21, 2016

Happy Holidays

Happy Holidays


Another year has passed and we wish all our friends of every faith a happy holiday season and prosperous 2017!

We'll be spending our next 2 weeks with our family and taking some time off from writing this magazine.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, December 14, 2016

Fire Truck Financing: The truth about interest rates

Last week, I shared a story about a fire department who did not have enough money to pay an upcoming truck payment.  They called, hoping that they could lower their payment by reducing their interest rate.

So, why won't a lower interest rate help them?

As I mentioned, the department paid little down and financed for a long time. 

Here's a secret:  Only a rather small portion of each payment is used to pay interest.  The majority of every payment is to repay principal (or, in other words, the money you borrowed).

In fact, you'll only pay about $1 of interest for every $10 borrowed for a typical fire truck financing for the entire financing period.

So, there was no dramatically lowered payment to be had from a lower rate. The only way to really lower your payment is to finance for a longer time.  Which this department maxed out upfront.


So, how can a fire department save money on fire truck financing?

It's easy.  Borrow as little as possible for as short of time as possible.  Of course, as regular readers know, you have to balance the cost with the payment budget and future purchases.

Summary

Saving money on financing does not come from a lower rate.  Yes, you will pay less but mistakes in choosing how much you borrow or how long you take to repay has far more impact on your costs.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, December 7, 2016

Fire Truck Financing: This is the Big Mistake

This is an actual account of a real fire department.  They called just this week.

Here's what happened to them

A new president called because a truck payment was due in a couple of months and they don't have enough money for the payment.  He called to lower the payment.  But there was no relief because of the decisions the previous administration made.


When the fire department financed their truck, they made 3 crucial errors.  Errors which will probably mean they will lose their truck in a couple of months.

Here's the mistake they made

The mistake has 3 parts.

First, they did not properly plan for the truck.  They had saved little money so they financed almost the entire purchase.

Second, they choose the longest financing term.  So now, a couple of years later, they owe a lot of money on a truck that has depreciated in value and they have no wriggle room to extend the term to lower their payments today.

Finally, they never had a plan.  They did not see beyond the excitement of a new truck.  They did not put this purchase as part of a bigger overall operational and financial picture.

So, they now have a truck that is a couple of years old that they can't pay.

Summary

It's easy to lost sight of the bigger picture in the excitement of a new truck.  But I get calls like this often, where the consequences of a poor decision come home to roost.


P.S.  Next week, I'll share why this department could not get relief from a lower interest rate


Stay safe!
John R. Hill
President
First Bankers