First, I own no stock in FOXF. I was a paid consultant by the company FOX hired to research the new lifted truck market before their 2017 partial acquisition of the truck upfitter Tuscany. They should have consulted with me before they acquired the Kinderhook upfitter company package purchase for $312M. Being a lifted upfitter for new trucks and having a bailment program with the manufacturers, they are shipped new trucks from the factory to install their packages. It is a fantastic privately owned business but horrible as a publicly traded company segment. The business ebbs and flows with the new lifted truck market. There are still privately held "branded" new lifted truck upfitter companies, i.e., Waldoch, American Luxury Coach, or Sherrod. A previous conversation with the owner of a branded truck upfitter company told me, "We adjust to conditions; if things are cranking, we are running at 100 percent; if things slow down, we may close a building and consolidate our operation until it picks up again." The one thing publicly traded companies are always searching for is revenue growth. FOX will not have this with their truck upfitter division.
The glaring problem with the branded new lifted truck business is that you cannot control your business. Instead, the truck manufacturers control your business. For this very reason, FOX's truck upfitter division is in trouble, and why I would've never recommended them do the package buy from Kinderhook. Not to mention the grossly overpriced they paid for it, $312M with over $100M in "goodwill"! I can't help but laugh and shake my head. After Kinderhook purchased SCA Performance, Rocky Mountain Truckworks, and Rocky Ridge, which they got Rocky Ridge in a fireside sale because they were going under, I had a conversation with the owner of a privately owned new truck upfitter company who told me that before the Kinderhook purchases, his business was worth $15-$20M and that was all the money! In a previous conversation with one of FOX's Business Development employees, someone told me that FOX requires a formal proposal and a committee to evaluate and analyze spending $25K on something. From what I heard, the Kinderhook deal came from the finance division. IMO, they just looked at the numbers part of the business without factoring in all the elements of the company. As a result, I'm anticipating severe buyer remorse will be happening very soon.
Ford, RAM, and GM all control the branded upfitter business. Therefore, you depend on them sending you truck chassis, and you receive what they want. Consequently, you must conform to whatever the OEMs require for a bailment program. Before I continue, I have yet to learn of or indication that the OEMs collude in controlling the chassis bailment programs for the branded upfitters. So, after over a decade in the marketplace, why aren't the OEMs providing more chassis for branded upfitters? It all comes down to money, precisely market share revenue. The truck OEMs want to avoid another playing field, the new lifted truck market, to compete on. That's an added expense they don't need or want to deal with. Pre-Covid Ford sold 900K trucks yearly at an estimated $14K profit per truck*, representing $12.6B in yearly profit. With the tremendous profit potential of new truck sales, any slight movement up or down in market share means 100's millions to them. They will appease branded upfitters with just enough to keep the lights on and have a good family business. The notion that any new branded upfitter can ramp up and scale their business to do large new truck numbers will never happen. Again, the OEMs will not let it happen! Anything that has the potential to disrupt their truck market share will be cut off, and it's because they sell so many stock trucks that they don't need to do business with any lifted truck upfitter.
You have the issue with OEMs being in control. Let's now talk about the dealers.
Here's where I empathize with FOX; since the SCA group acquisition, we've had the COVID mess, which created an anomaly with the new truck market. First, because of the scarcity of new truck inventory, dealers called all companies with bailment programs to get new trucks. Then, not caring what upfit package they got, sending me some new trucks to sell was the focus for dealers! With trucks flying off to dealer lots and selling out of their bailment vehicles, I'm sure FOX thought they made a favorable investment decision. However, FOX is about to get a reality check as the long-standing problems with the new lifted truck market come to light.
New lifted trucks have been in the marketplace for over a decade, so dealers know the branded lifted truck upfit companies. Therefore, the first significant problem with the new lifted truck market is the lack of consumer awareness—the problem with trying to solve that it's cost prohibitive for an upfit company. The second significant problem that FOX will be feeling very shortly, if they haven't yet, is the stalling demand by dealers for their products. This hurdle validates why a new lifted truck upfitter business is not a good investment for a publicly traded company. Furthermore, it is a huge red flag for the additional growth potential of the business. Without dealers ordering your products, you're in trouble. To the credit of the remaining privately owned new truck upfit companies, American Luxury Coach, Sherrod, and Waldoch, they know the slog it is to constantly beat on dealers' doors to sell your product. The dealers' resistance is due to their problem with new lifted trucks, which is the turn time. Sure, the dealer can make additional profit with them; however, they sit on their lot, and the costs add up for having a modified vehicle over a stock one, which they can sell all day.
Furthermore, you can only sell to new dealers, so you only have X number of dealers in the pipeline to contact. Finally, you need more dealers to sell your product to when you've gone through them, so you end up with a core group of stocking dealers. Your sales team beats the phones daily to get dealers to stock your product. If a dealer orders, and the vehicles don't turn quick enough, they don't reorder. I refer to constantly chasing dealers' orders as the "revolving dealer door." When that door stops, the stall happens, and the grinding starts to get sales from dealers.
*Al Root, "Ford's Profit Warning Shows the Truck Business Is Strong. EVs Could Make It Better." accessed May 16, 2023, https://www.barrons.com/articles/ford-stock-profit-warning-ev-51663709443
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