Good morning, and welcome to PACCAR's Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Today's call is being recorded. [Operator Instructions]. I would now like to hand the call over to Mr. Ken Hastings, PACCAR's Director of Investor Relations. Mr. Hastings, please go ahead..

Good morning. We would like to welcome those listening by phone and those on the webcast. My name is Ken Hastings, PACCAR's Director of Investor Relations. And joining me this morning are Preston Feight, Chief Executive Officer; Harrie Schippers, President and Chief Financial Officer; and Brice Poplawski, Vice President and Controller.

As with prior conference calls, we ask that any members of the media on the line participate in a listen-only mode. Certain information presented today will be forward-looking and involve risks and uncertainties, including general economic and competitive conditions that may affect expected results.

For additional information, please see our SEC filings and the Investor Relations page of PACCAR. I would now like to introduce Preston Feight..

Good morning. Harrie, Brice, Ken and I will update you on our record third quarter financial results and other business highlights. PACCAR's outstanding employees delivered this excellent performance by providing our customers with the highest quality trucks and transportation solutions in the industry.

PACCAR's third quarter net income increased 60% year-over-year to a record $1.23 billion and revenues increased 23% to $8.7 billion. Truck, Parts and Other gross margins expanded to 19.5% in the third quarter compared to 14.9% in the same period last year.

PACCAR's global investments in innovative new DAF, Kenworth and Peterbilt trucks, as well as investments in technology and manufacturing were key elements in delivering this strong performance. PACCAR Parts third quarter revenues increased to $1.58 billion. Parts pretax profits were $412 million or 10% higher than the same period last year.

PACCAR Parts provides its customers with industry-leading technology that enhances their uptime. PACCAR Financial earned a strong pretax income of $134 million in the third quarter, reflecting its high-quality portfolio. We estimate this year's U.S.

and Canadian Class 8 market to be in a range of 295,000 to 315,000 trucks and next year to be in a range of 260,000 to 300,000 vehicles.

Customers are replacing their trucks with the new heavy and medium-duty Peterbilt and Kenworth models that enhance their operational efficiencies, achieve industry-leading fuel economy and attract and retain the best drivers. Demand is strong for Kenworth and Peterbilt trucks with the first quarter of 2024 filling in quickly.

In Europe, this year's truck industry registrations in the above 16-tonne segment are estimated to be in a range of 310,000 to 330,000 vehicles. The 2024 market is expected to be in the range of 260,000 to 300,000 trucks.

The new DAF trucks have redefined the premium truck segment in Europe and offer superior aerodynamics, award-winning fuel economy and enhanced features that make them the driver's choice. The South American above 16-tonne market is projected to be in a range of 105,000 to 115,000 trucks this year and in a similar range next year.

DAF Brazil recently celebrated its 10th anniversary and has increased its greater than 16-tonne share to a record 10%. The DAF lineup of trucks is performing exceptionally well for customers in all Brazilian operating environments. PACCAR recently announced its participation in a new battery cell joint venture.

The joint venture will be located in the United States and will manufacture battery cells for use in medium and heavy-duty trucks. PACCAR's proprietary battery cells will create value for our customers, and help them achieve their future operational and environmental goals.

PACCAR's employees and dealers are delivering excellent results for our customers, and we're excited about the future. Thank you. Harrie Schippers will now provide an update on PACCAR Parts, PACCAR Financial Services and other business highlights..

Thanks, Preston. PACCAR delivered 50,100 trucks during the third quarter. We estimate fourth quarter deliveries to be similar and in the range of 48,000 to 51,000 trucks. More production days in the fourth quarter in Europe will be offset by fewer production days due to holidays in North America.

The supply base is improving but continues to limit production. Truck parts and other gross margins increased to 19.5% in the third quarter. We anticipate fourth quarter close margins to be around 19%, reflecting the strong performance of our new truck models and PACCAR Parts. PACCAR Parts delivered third quarter gross margins of 31.5%.

PACCAR Parts innovative programs such as Advanced Fleet Management Services and Predictive Dealer Inventory Management, helped customers increase vehicle uptime and their financial performance. For the fourth quarter, we expect part sales to be 7% to 9% higher than in the same period of last year.

PACCAR Financial Services results in the third quarter benefited from excellent portfolio quality and positive used truck results. Pretax income was $134 million. PACCAR Financial is the market leader supporting the superior Kenworth, Peterbilt and DAF products with innovative technologies and a strong global used truck network.

In the last 2 years, DAF, Kenworth and Peterbilt have introduced more new truck models than at any comparable time in the company's history. The pace of these introductions continues with a new flagship Peterbilt's Model 589 that begins production in the first quarter of 2024.

PACCAR's capital investments in new and expanded facilities, innovative products and new technologies have created the highest performing trucks and transportation solutions in the industry and will contribute to excellent financial returns for many years.

PACCAR's return on invested capital further improved to an industry-leading 35% in the first 9 months of this year. This year's capital expenditures are projected to be between $650 million and $675 million and will increase to $675 million to $725 million next year.

Research and development expenses will be $410 million to $420 million this year, and increase to between $470 million and $520 million next year. In addition to the capital and R&D investments, the company will own a 30% share in the battery cell joint venture and expects to invest $600 million to $900 million over the coming 3 years.

With the most advanced truck range in the industry, efficient investments, strong aftermarket parts and financial services businesses, and exciting new strategic opportunities, PACCAR is positioned well for the future. Thank you. We would be pleased to answer your questions..

[Operator Instructions] Our first question today comes from Tami Zakaria from JP Morgan..

So my first question is about parts growth. I think in the press release, you said you're opening a PDC in Germany next year.

So how should we be thinking about parts growth in 2024 in terms of how long does it take a PDC to sort of ramp and reach run rate capacity? How do we think about growth overall? If you could give some color on that, that would be very helpful..

Happy to start with that, and Harrie can add anything he wants. I think what Harrie shared with you is that we think parts growth is going to be in the 7% to 9% in the fourth quarter.

And to your point, on the effective of PDC, it's almost immediately good for the business, right? What a PDC does is it allows us to have closer points of contact with our customers, get them parts in a more quick way and support their businesses for more same day or next day parts delivery. So it's really quickly beneficial to them, Tami..

Got it. That's very helpful.

And then how should we think about decremental margins next year, given you're expecting truck sales down both in Europe and U.S., Canada?.

I think what we've been able to do in the last few years, and we shared this as we've introduced more new products at any time in our history, and we continue to that with the new Peterbilt Model 589. Those products are doing exceptionally well for us in the marketplace.

So we're pleased with how they're performing and that means performing for our customers. So they're getting value out of that. And I think we'll watch how the market develops for next year and we have a lot better insights into margin and what's going on as we get into the first quarter for 2024..

Our next question today is from Steve Volkmann from Jefferies..

Preston, I think it was you who was talking about the launch of the new Peterbilt, I think, in January of '24, you said, sorry if I got that wrong. I'm just curious how big of a launch is that? Okay. Great.

How big of a launch is that? How much of your North American revenue could that be? And where I'm trying to go with this is, you guys always seem to engineer in sort of higher margins as you do these changeovers. So I'm trying to figure out how much of a tailwind that might be in 2024..

Steve, well, first of all, I mean, the thing about it, what we try to engineer in is higher value for our customers. And I think that that's what we've been able to do with these new products. The 589, well, the right word is it's cool. When we did the introduction for it, it was just exciting to see it. It's going to be iconic in the industry.

It looks fantastic, and I think it will be a great flagship for the Peterbilt team. As far as percentages, maybe Harrie, you want to --.

The 589 Steve will replace the 389. And a good way to think about it, the 389 is now about 20% of Peterbilt's production. So maybe 6%, 7% of PACCAR's total production. And the 589, like I said, will be placed and maybe grow even a little bit more..

Great. Okay. And then my follow-up is on the Financial Services, Harrie. I'm curious, obviously, it was down a little bit year-over-year.

How do the higher rates that we're seeing in the market kind of layer in? Because obviously, you get some income, I guess, on your cash balances, which is great, but then there's probably some headwinds in the finance book. And I don't know, just any color you could give us on that would be great..

We -- the portfolio quality, Steve, continues to be very strong. We have a portfolio of almost $20 billion now. with past dues less than 1%. So yes, higher interest rates do drive higher payments for our customers.

But with all the new products that we launch that have better fuel efficiency, they do see savings on the fuel bill, that more than offset the higher interest payments in today's environment..

Our next question is from Chad Dillard from Bernstein..

So first question for you is how much visibility do you have into engine rebuilds? And what does it tell you about your engine parts demand or what it could look like more broadly into 2024?.

Well, I think we have pretty good visibility to the life of the engine. So our Parts team does a fantastic job of tracking miles or a lot of our vehicles are connected, so we get to see what miles are accumulating. We obviously manage what's going on from an engine parts utilization standpoint.

And then as the population is still reaching a point of maturity, we expect to see the amount of rebuilds increasing over time. So that should be still accretive to the parts business..

Got it. That's helpful.

And the second question, can you talk about your approach to managing the growth in air pocket in '24, just given that you do have a prebuy ahead of the 27 emission standards that could probably start in 2025 and '26? I just want to get a sense for how you're thinking about labor line rates, maintaining your suppliers, so you can catch the rebound..

Yes. I think that what we see is right and we've been talking about this for a little while with you guys is our approach has been to spend money in research to make sure we have the right products sitting out there, and we do. So we're really well positioned with the newest product line. That matters a lot.

And then I think where we're sitting in time is markets that haven't been able to be fully met for a few years, and now people are starting to think about what the future might be in terms of 2027 emissions, which could make this a stronger for longer kind of a good approach Obviously, your word was air pocket.

I got to tell you, I've never heard that word before, but I'll use it with you. And if it's an air pocket next year, we'll see what that looks like as we get into 2024..

Our next question is from Rob Wertheimer from Melius Research..

Yes. One market question then hopefully, more interesting strategic.

So just on the outlook, is there any material mix shift kind of coming through in your customer conversations or order flow towards vocational? And does that outlook anticipate a decline in sentiment? Or does it sort of follow along with what you've already seen in the customer base?.

Rob, I think you're paying attention to what's going on. I mean we do see a really strong vocational market out there. We see a strong medium-duty market. The LTL market is very strong.

And then as we were talking about in the last question from Chad, the idea that I think customers that are sophisticated or paying attention to the next few years and want to keep their fleet age at a low level. So there's a lot of contemplation for them to stay on a smart buying cycle for them.

And frankly, as we've said and we keep saying, right, these new trucks are providing good value to them. So there's a reason for them to keep buying trucks. And I think that all factors into where we think the market is going to be looking forward..

Okay. Perfect. And then another 1 just on the battery investment. This has been the subject of some debate as your future trucks will presumably have higher content with batteries and autonomy and other things, but just sticking with the batteries for the moment.

And some question as to whether those batteries would be commodity provided by somebody else or more individually designed for your trucks by you. And this seems to lean in the latter direction.

I wonder if you could comment on the proprietary nature of it, the chemistry and what you expect on this investment and the timing of when those trucks might actually start to roll in numbers to market. I'll stop there..

Yes. There were a lot of questions in there, but let me kind of give you an overview and come back into it if you want to. So what we see is, as we move forward, there's going to be a host of technologies employed for how we use motor power. I think clean diesel is going to be part of it.

We obviously think that batteries are going to be part of it as we did this joint venture into proprietary battery cells. And we think that hydrogen can play a role as well, whether that's internal combustion or it could be through fuel cells.

But in the case of batteries, when you create a battery electric vehicle, the cost of the vehicle is highly impacted and influenced by the cost of the battery.

So having it be more vertically integrated is an advantage, we think, for our customers and gives us an ability to control both the energy in the battery as well as the battery energy management system to the vehicle. So we felt like getting involved in that space was important, and we think that will be a few years before it develops.

Obviously, we don't have our regulatory approvals yet. And so we'll give a little bit of caution that we need those approvals for forward-looking, but that feels like it's going in a good direction.

And then as I think about the kinds of chemistry you asked about the technology we've chosen is LFP, lithium-iron-phosphate or some derivative of that that we might use. And the benefit of that is it's a safer battery chemistry. It doesn't rely on rare earth minerals. It's more durable, it's faster to charge, and it has a better life capability.

So -- and a better cost structure. So all of those factors are the reason we chose that technology and just huge credit to our technology teams who have thought this through for the last several years as they made this decision and got us going on this great path..

Our next question is from David Raso from Evercore ISI..

The comments earlier about the first quarter of '24 are starting to fill up quickly.

Can you give us some insight on how the pricing is for those first quarter deliveries? And then maybe a sense of the cadence year-over-year that you expect the U.S./Canada down 8% to play out for the industry?.

Well, I think if you think about pricing, what we did is we shared with you where our vision is best, David, and that's at the fourth quarter. So that's where we gave you a gross margin expectation of around 19%. And as I said, it's filling in quickly.

But I think that the key we've been focusing on is making sure that customers do realize the value of the products, they are. That factors into the pricing, obviously. And I'll say it's a competitive world out there.

So I think it's -- look forward to having the conversation with you on pricing and what's going on in the marketplace as we get into the earnings in the first quarter there. So that's kind of where that sits. From a secondary question of cadence, I think we're seeing, as I said, the first quarter looks pretty good.

And I think that the overall sentiment is while there may be some moderation in truckload, people are trying to figure out how to think about the next 3 years. And so I don't -- I'm not smart enough to know what Q2, Q3, Q4 are going to look like.

And we just feel like we'll see some adjustments there from this year, but that it should still stay at like a replacement demand level..

That's helpful.

The order book right now, how far can the dealers order out to, say, U.S., Canada into '24?.

Looking at the first half..

Our next question is from Jerry Revich from Goldman Sachs..

I wonder if you could just talk about the new product portfolio, I mean, in Europe. I think your profitability per truck has doubled with the new product, similar on the medium-duty product lineup.

Is it possible, Harrie, for us to have a discussion of what proportion of the portfolio fits this new product paradigm versus the type of rollouts that we have still in front of us over the next couple of years? How far away are we through rolling out this new higher-margin portfolio that seems to be a big step higher for you folks?.

And the new DAF is currently a little over 80% of all the trucks that DAF is building. I remember DAF was also building trucks for export outside Europe. But I would say within Europe, almost all the trucks that we're selling are the new DAF with the improved aerodynamics and the better fuel economy because that's what customers want.

And then going forward, yes, we're planning to bring that new DAF product also to other markets. And any market where we're currently selling DAF is an opportunity to sell the new DAF in the future..

And sorry, Harrie, can we expand that conversation in North America as well? So with the 589 rolling out, what's the remaining opportunity within the book for upgrades that you folks have planned?.

Well, like I said, the 589 is -- the 389 is 20% of Peterbilt's production. So it's about 6%, 7% maybe of PACCAR's production. So with the 589 replacing the 389 next year, it will be a similar percentage, I would think as the 389 is today..

And there's a pipeline for new products from there, it sounds like?.

Of course, yes, I'll help a little bit here. Like you see what our R&D numbers are for next year. We think there's a ton of great projects that we have out there that provide good value to our customers and shareholders. And so we -- that pipeline is very full..

Okay. Super. And can I ask on the battery electric investment, you folks have really good connectivity with your clients on the consultation side.

Once you get the plant up and running, how quickly based on your conversations, do you think demand will ramp up? How big are the concerns around the utilities' ability to keep up versus having a product that's going to be producible at scale that you folks are effectively going to be solving for the industry in 2027?.

I think you just captured the issues that are unknowable at this point right now. Regulation is a factor. Energy is a factor. Infrastructure is a factor and the rate of adoption for EVs. Price is a factor as well. But our position is as PACCAR is, we want to make sure that we offer our customers the right solutions, right? So we make the investments now.

We're less concerned about whether the adoption curve is rapid in '27 or if it's '28 or whenever it is. We'll have great diesel engines, we have great electric vehicles, great hydrogen vehicles. And that puts us in a position of supporting their needs regardless of the circumstances..

Our next question today comes from Steven Fisher from UBS..

Preston, you gave us some reasons for generally high margins in terms of the investments in technology and manufacturing, but I guess what was so much better than you expected in margins in the quarter at the TPO level? I mean still like 100 basis points above your midpoint.

So just curious kind of was there any 1 of those factors or just conservatism that you're now baking into your numbers?.

I think that we -- as we've shared with you, Steven, is that we're looking at the steadiness of supply has been improving, but we certainly had some impacts from that. So that's a factor in there. I think that our rest of world markets are doing exceptionally well for us in addition. So that's a factor in there as well.

And we just had a -- we had a smoother set of builds that probably happened for us. And those are probably the biggest things..

Okay. That's helpful. And then I'm just curious what indications do you have from your suppliers for costs on 2024.

At this point, does it make sense to assume that the costs are generally going to be higher? And do you have an overall sort of cost strategy as you think about framing up 2024 at this point?.

Yes. I think that as you can see, we see various commodities moving in different directions, so moving in a down -- we're positioned some moving up. And obviously, there's some labor pressure. Those are probably the biggest influencers on cost right now. And I think that we'll look at 2024 when we get into January and see how that's looking then..

Okay. I just had 1 quick clarification. The cost you mentioned on the R&D -- or sorry, on the new battery plant.

How does that flow through the financials? Is that going to be a -- is that part of R&D costs? Or where does that flow through?.

That won't show up as R&D, it will show up as an investment as part of our 30% investment in the joint venture..

Our next question is from Tim Thein from Citigroup..

The question, I just wanted to come back, maybe press in a little bit higher level thoughts on Parts in '24. If you look back, historically, there has been some relationship when PACCAR's truck volumes declined and industry profitability comes -- or is under pressure, that has weighed on parts sales, obviously not nearly the same kind of magnitude.

But just as you -- but we're coming through weird times from inventory stocking levels and -- and I can imagine that maybe there was some restocking that helped Parts growth this year.

But as you just kind of weigh this all together in an environment where global truck volumes are declining, and from what we can observe, trucker profitability in developed market's under some pressure.

How do you think that all comes together in terms of PACCAR's Part sales in '24? Any just -- I know you're not going to give us for an estimate, but just how you're thinking about that for '24..

Absolutely, Tim. Fun to talk about it.

I think that the overarching view I take of it is our parts team has done a great job of transitioning over the past several years, they're not really parts providers, they're transportation solutions providers, right? So they're thinking about what's valuable to the customer and what's valuable in the engagement with the dealer.

And they've done a really good job of that. And I think that's foundationally lifted their performance over time, which goes along to the -- was it roughly 9% per year growth they've had over the past 20 years.

So I think that they've done a really nice job of continuing to evolve the business through the application of technology and analytics, and I expect that, that will over the medium term continue and long-term continue. So positive in that regard. I heard everything you said about the sensitivity to market, there's truth in that as well.

And that way, we'll just look at what 2024 does. .

Okay. All right. Fair enough. And maybe one, just from an inventory level at your dealers, both new and used. Just where do we sit there? And I guess, kind of the related question is the appetite for dealers from a stocking perspective in '24. Just where does that sit? I'm sure it varies by geography, but maybe just some thoughts on that..

Yes. Very good, Tim. You did ask that the first time. Sorry, I missed it. We saw that there was some probably strong interest in having enough inventory when supply was limited. And I think that, that was mitigated for a little bit.

And I would say things are more back to normal in terms of overstock, destock and kind of sitting at a level where inventory feels like a rational and healthy level for our dealers now..

Our next question today is from Nicole DeBlase from Deutsche Bank..

Maybe just starting on Europe. So obviously, a lot of talk about U.S.

and Canada on this call, but what are you guys seeing from an order perspective within Europe that's kind of underpinning a weaker outlook for 2024 relative to the U.S.?.

Yes. I think that what we're seeing in Europe is like we have good fill going into the first quarter. It feels like the general economies over there feel a bit more moderated than they are here. And so there's probably more contemplation going on within the customer base there..

That makes sense..

No, I think that's absolutely correct. The market is a little bit softer there. And that's why we're forecasting a market between 250,000 and 300,000 for next year. So that's somewhat of a decline compared to this year..

Understood.

And then in the U.S., can you just speak to a little bit of what you're hearing by customer side? So any major divergence in order activity from like small versus medium versus large fleets?.

I think it's kind of interesting is that like we said earlier in the macro scale of it, there's a lot of sectors that are doing exceptionally well right now. The vocational sector is probably just spinning up. It's a very strong sector for PACCAR in North America with Peterbilt and Kenworth having roughly 40% of that market. So that's good.

We see some real strength in the LTL market as well, we see real strength in the medium-duty market as well. As I shared earlier, I think that the large truckload carriers are contemplating what they're going to do and thinking about the next 3 years and keeping their fleets at a young spot.

And I think for all our customers, there's the advantage of the new truck, right? If the truck is providing a 7% benefit in fuel economy, it's compelling reasons to buy that truck plus the drivers love it. So those things factor in, and it kind of gives you a walk through across the sectors of the market..

Our next question is from Matt Elkott from Cowen..

So your 2024 U.S. and Canada Class 8 forecast, it reflects what seems to be a smaller decline than some may have feared. My question is, given you guys have higher exposure to infrastructure than some of your peers, do you think backlog can do even better than this forecast in the U.S.

that is?.

Better than the forecast in terms of?.

A smaller decline even than the 8% that you're expecting for the industry?.

Our strong presence in the vocational segment where we have 40% market share, that strength obviously should translate into PACCAR doing really well next year..

Okay. But -- so relative to the industry forecast, do you think you might be able to outperform or you're not ready to say that..

Well, I think what we did is we gave the forecast with the range because that's what we think the range could be, right? That's why we came out 260 to 300 because that's how we see it..

Okay. And then just 1 more follow-up.

If you -- if we do have a higher mix of vocation in the next year or 2, can you just talk a bit more about what it could mean for margins and pricing and as well as the kind of fluidity of the manufacturing process?.

Well, our truck plants, and it's a good opportunity, thanks for bringing it up. I mean, the mixture and how that works is our truck plants are just done an absolutely amazing job around the world, managing the last few years, and they are artisans at being able to build the trucks that they need to build.

So I couldn't be more proud of them and pleased with the results that they've delivered. And I think that if we see mix shifts from on-highway into the location market, that's very adaptive for us. We can build any truck in our factories that we need to and they're very good at putting those trucks out.

So I think that, that will be just fine for us if we see that shift, and it won't -- it will be -- and it will be good for PACCAR and good for our customers..

Our next question is from Jeff Kauffman from Vertical Research Partners..

Congratulations. I want to think a little bit that -- you're welcome. I want to think a little bit about this joint venture. So you said I guess, 2 questions. Number 1 on CapEx. You said $600 million to $900 million.

Let's assume that you can get all of the approvals that you need, does that imply when we're thinking about '25, '26 CapEx, we could be looking at $1 billion plus in terms of total firm CapEx? That's question one..

Let's go for that question, and then you can do for the second one, Harrie, if would take it..

So the $600 million to $900 million investment in the joint venture will be showing up as an investment. It will not show up as our capital investment plan. So the capital numbers we just mentioned for this year and next year are without the joint venture..

Okay. And then question 2, I'm thinking back to the future here, 21 gigawatts at the factory. But if I want to bring it into something that I can convert into trucks. So if I think of 21 gigawatt and maybe your smaller trucks are 250 to 300-kilowatt hour batteries and your larger trucks are kind of 600, 750-kilowatt hour battery.

So I'm just going to take an average of 500.

Are we talking about kind of 40,000 to 50,000 vehicles a year that this plant could theoretically battery and then you would have a 30% interest in that, that shows up as other income investment in joint venture?.

Yes, Jeff, that is perfect math. I think you can use that and you probably can go back to the future with that..

Our last question registered is from Scott Group from Wolfe Research..

So I just wanted to just follow up on 1 of the earlier questions.

What percentage of your mix is typically the large truckload? And then within the 2024 trucks, is there any change in mix of sales with the MX versus not? Is that mix going higher or lower?.

On the mix of sales, I mean, I think that you can kind of see variance within the model, right? I think if you're asking is like you could look at fleets and customers in the midsized over-the-road segments being a big part of it, vocational is kind of a part of it, then you put the LTL as a part of it in the greater than 160 Class 8 markets.

And I think that they split up is the biggest part of that is the truckload and then obviously the LTL combined, and then you get into the vocational is next behind that. So that's kind of how we think of it, and we don't really worry through what the percentage of each will be because there's such overlap between them..

And then any changes again in the -- of what you're selling for '24 if MX penetration is higher, lower, unchanged?.

Yes. We think the MX engine is going to be doing really well next year, right? It was 43% of our build in the quarter this quarter. And we expect to see that growing. We've been working through supply constraints on it. And as we work through that, we think there's great upside for that next year..

Okay. Any color on how to think about the FinCo margins from here, loss provisions up a little bit.

But how do we think about FinCo from here?.

Finco should continue to be strong in the fourth quarter and next year. Credit losses were $6 million in the quarter, but that's really a very small number to the total almost $20 billion portfolio. So excellent credit quality. And like I said, we expect the finance company to continue to do well..

Okay. And then if I could just ask 1 more, just big picture. I know there's been a lot of questions about gross margin. But you go back 30 years, it's never -- you've never had a year at over 16%, and this year is going to be over 19%. So it's a lot of what you've been talking about.

I guess what do you think is the right -- what's the new range that you would think about through a cycle for PACCAR gross margin going forward?.

Well, I think that the reason we've seen that gross margin is because there is an incredible team of people at PACCAR that are working every day to give our customers great value, and they're succeeding in that. It's a huge part of it. We have a fantastic dealer network. They're doing a great job.

And I think our customers are seeing the value in that as well. So that's the overarching things that are driving it up. and we aim to continue to deliver on that. I think predicting the future gets a little risky. And we'll look at how it comes through.

It depends on the cycles and everything else, but I can't be more pleased with how PACCAR is positioned for the future and what it will be able to deliver..

Thank you. This is all the questions we have today. So I'd like to hand back to management for any closing remarks..

We'd like to thank everyone for joining the call, and thank you, operator..

Thank you, everyone, for joining today's call. You may now disconnect your lines, and have a lovely day..