Rush Enterprises, Inc.

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Rush Enterprises, Inc.

555 IH 35 South
New Braunfels, Texas 78130
U.S.A.
Telephone: (830) 626-5200
Toll Free: (800) 973-7874
Fax: (830) 626-5318
Web site: http://www.rushenterprises.com

Public Company
Incorporated: 1995
Employees: 1,880
Sales: $815.3 million (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: RUSHB
NAIC: 441200 Other Motor Vehicle Dealers

Based in New Braunfels, Texas, Rush Enterprises, Inc., is a full-service retailer of heavy and medium-duty trucks and construction equipment. The company's business is conducted through four divisions. Rush Truck Center Division operates a network of nearly 40 centers, located mostly in the Sunbelt, which specialize in the sales of Peterbilt Class 8 heavy duty trucks. All told, Rush Enterprises accounts for more than 20 percent of all Peterbilt trucks sold in the United States, making it Peterbilt's largest dealer. The Truck Center Division also sells Class 7 Peterbilt trucks, Peterbilt refuse chassis and cement mixer chassis, and some medium-duty trucks from General Motors Corporation and Nissan Motor Co. It also sells used trucks and provides truck parts and services. Rush Equipment Center, headquartered in Houston, Texas, sells new and used construction equipment, including a complete line of John Deere construction equipment, such as backhoe loaders, crawler-dozers, four-wheel drive loaders, and hydraulic excavators. In addition, the division offers parts and service. Rush Leasing and Rental Division provides leasing and rental options for customers of both the truck and construction equipment divisions. Rush Financial and Insurance Division offers truck and construction equipment customers with financing options as well as insurance. Although Rush Enterprises is publicly traded, its chairman, W. Marvin Rush, and his family own approximately 39 percent of the company.

Origins: 1950s–70s

In the early 1950s, when he was just 14 years old, Marvin Rush got his start in business in the Houston area by selling sodas for five cents each. From his profits, he bought his first car, complete with radio. When the radio broke, he took it to a shop where televisions were also repaired. There, as he often would in his life, he spotted a business opportunity. Because many people were starting to trade in their first television sets for the newer and larger units that were coming onto the market—as television was just beginning to become an standard household item—Marvin Rush decided to visit area television stores and buy their trade-ins. He spruced them up and resold them at a profit. In addition, he offered financing to customers who could not afford the purchase price up front—a practice he would refine years later as a truck dealer.

Even before graduating from high school, Rush turned from selling used televisions to selling used cars. He then took on a partner to become involved in the bus business. After selling out to his partner, he bought his first truck dealership in Houston in 1965, launching Rush Enterprises. He had a franchise agreement with General Motors to sell mid-sized GMC trucks, which had a very limited market and placed Marvin Rush in fiscal jeopardy. The money was in big rig trucks, a fact that prompted Rush to search around for a new franchise. He found it in the relatively new Peterbilt Motors Company, which mostly sold to the West Coast, and he was able to secure a franchise in Houston. He now began to prosper in the truck sales business and soon opened sales operations in Fort Worth and San Antonio. He then acquired a number of assets to complement his truck business, including Houston's World Wide Tires and some leasing and finance companies.

When he turned 40, Rush made a drastic change of course that almost led to his financial ruin. He sold all his businesses, with the exception of the San Antonio truck dealership and World Wide Tires, and in the late 1970s moved to Hawaii. He bought up a number of tire stores on the islands, but with the advent of a recession he found himself in a precarious position. He slashed prices, a move that merely bought him time, given that Hawaii had a limited number of potential customers. Rush was only days away from filing for Chapter 11 bankruptcy protection, the prospect of which he found morally repugnant, when the Frost National Bank agreed to help him stay in business until he could find a buyer for his tire stores.

Rush Returns to Mainland in 1982

Saddled with debt, Rush returned to the mainland in 1982. His only assets were World Wide Tires, the San Antonio Peterbilt dealership, and his original Houston GMC dealership. The next three years were spent getting back on his feet and paying off the banks. He then began to build up Rush Enterprises again, buying back his Houston Peterbilt dealership as well as one in Lufkin, Texas, and once more added complementary businesses. Rush also made personal investments in other areas, buying a freight company, two Texas car dealerships, and heading an investment group that took control of TexStar National Bank. By 1990, he was joined by his sons, Robin Rush and W.M. "Rusty" Rush.

Rush asked his sons in 1992 whether they should sell Rush Enterprises, and they convinced him to expand the business instead, establishing a lofty goal of becoming a $1 billion company by the end of the decade. Rush sold off many of his personal holdings in order to focus on Rush Enterprises, as the company went into growth mode. It acquired truck dealerships in Laredo, Texas; Shreveport, Louisiana; Oklahoma City and Tulsa, Oklahoma; and Fontana, Pico Rivera, and Sun Valley, California. Rush Enterprises also added a finance company, an insurance agency, and began accumulating leasing companies.

Rush recognized that truck sales was a highly fragmented industry that was going through some significant changes and recognized an opening to become a major consolidator. He told the San Antonio Business Journal in 1997 that his desire to consolidate was "driven by our customers' customers to bring this industry into the 21st Century.… They have to deliver within a two-hour window. They need a support system." As a result of adding businesses, revenues grew at a rapid clip. By 1995, Rush Enterprises was the largest Peterbilt truck dealer in North America, accounting for 14 percent of all sales. At this stage, the company operated eight full-service and six parts and services truck centers. Total revenues reached $269 million in 1995, a 30 percent increase over the year before.

To fuel further growth, Rush Enterprises elected to go public in June 1996, becoming the largest American car or large-truck dealership to take that step. With New York's Ladenburg, Thalmann & Co. Inc. serving as lead underwriter, the offering was oversubscribed and all shares sold in one day, netting Rush Enterprises $32 million. The company earmarked $10 million to buy additional Peterbilt dealerships, improve existing truck centers, and pay down debt. In addition, the company planned to spend $3 million of the proceeds to open a full-service dealership in the Texas Rio Grande Valley area and a southern California parts and service facility.

Rush Enterprises appeared poised to become a major consolidator among truck dealership, many of which were mom-and-pop operations that would welcome an exit option, but in some ways the company became a victim of its own success. In a short period of time, five new-car dealership groups went public and other truck dealers talked about following suit. Dealerships took notice of the trend and increased their asking price. In the ten months following its initial public offering, Rush Enterprises completed just one acquisition, paying approximately $7.9 million for Denver Peterbilt, Inc., adding two full-service Peterbilt dealerships in Denver and Greeley, Colorado. Rush told Automotive News in April 1997 that dealers "are having visions of grandeur.… Going public has raised the bar. Dealers are reading all that hype on the auto side."

Rather than overpay to add dealerships, Rush decided instead to look for a complementary industry ripe for consolidation. He found it in construction equipment. In July 1997, the company formed a new construction equipment division, Rush Equipment Centers. Following the example of the truck division, Rush Equipment was designed to combine sales and rentals of new and used heavy-duty construction equipment, backed by support services. By October, the new division established a foundation by acquiring a Houston John Deere dealership from C. Jim Stewart & Stevenson, Inc. in a deal worth $25.1 million. The goal was to grow the business to the $300 million to $400 million level in annual sales by the year 2000, but the reality would fall far short of the company's ambitions. (Construction equipment sales were less than $35 million in 2000.)

Further Diversification in the Late 1990s

Rush Enterprises sought further diversification, and a hedge against softening in the truck industry, by branching out into another area. In February 1998, it formed a retail center division, Rush Retail Centers, in preparation of the $10.5 million purchase of D&D Farm and Ranch Supermarket, Inc. D&D was a retail farm and ranch superstore located in Sequin, Texas, outside of San Antonio. The plan was to introduce the D&D format to other metropolitan markets. Stores would be opened in the Houston and Dallas-Fort Worth areas, and in 2000 Rush Enterprises supplemented D&D's business by acquiring Smith Bros. Catalogs, a western apparel and gear marketer. D&D gained access to Smith Bros.' database of more than 120,000 catalog and Internet customers. It hoped to add D&D products to Smith Bros. catalogs, which it could also mail to D&D customers.

Company Perspectives:

Rush Enterprises operates the largest network of Peterbilt heavy truck dealerships in North America with locations in California, Arizona, New Mexico, Colorado, Texas, Alabama and Florida.

In the late 1990s, Rush continued to add to its slate of construction equipment and Peterbilt truck dealerships. In September 1998, it added Klooster Equipment for $13.1 million in cash, then in August 1999 it bought Calvert Equipment Inc., a John Deer construction equipment dealership, in a deal worth $11.1 million. Rush Enterprises added five Peterbilt truck dealerships in Arizona and New Mexico in October 1999 through the acquisition of Phoenix-based Southwest Peterbilt Inc., paying nearly $24 million. Subsequently, Rush Enterprises spent another $4.5 million to acquire Norm Pressley's Truck Center, adding three more Peterbilt truck dealerships located in San Diego, Escondido, and El Centro, California. In the meantime, the relationship between Rush Enterprises and Peterbilt's parent corporation, Paccar Inc., was strengthened when the Bellevue, Washington, company bought a 14 percent interest in the business from Marvin Rush, whose own interest was reduced to 39 percent.

Rush Enterprises capped a period of strong truck sales through the late 1990s by being named Peterbilt's North American Dealer of the Year in 2000, an honor that provided cold comfort because of a dramatic drop in truck sales early in the year. As was often the case, the truck market was the first to show signs of a troubled economy. Exacerbating the problem was rising fuel prices that, despite strong demand for freight services, forced larger carriers to cut back on plans to expand their fleets and forced smaller trucking companies out of business. Rising interest rates, a tight labor market, and overproduction also contributed to an oversupply of trucks. Because of its efforts at diversification and its strong service operation, Rush Enterprises was much better positioned than most competitors to weather the storm. The company was still able to post record revenues of $805.4 million in 2000, while realizing a profit of $3.3 million. A year later, the decrease in truck sales, as well as a drop off in demand for construction equipment, led to an overall decline in revenues to $691.5 million, the numbers mitigated somewhat by a significant increase in sales from truck parts and service. The company still managed to hold the line on profits, with net income falling slightly to $3.2 million.

Rush Enterprises was able to take advantage of tough times by making opportune acquisitions. In August 2001, it paid approximately $2.5 million in cash for El Paso Great Basin Trucks Inc., picking up two Peterbilt truck dealerships in El Paso and Las Cruces, Texas. As a result, Rush Enterprises was now the sole provider of Peterbilt new truck, parts, and service at every major United States-Mexico border cross. The transaction left Rush Enterprises with 34 truck locations in seven states. Later in 2001, Rush Enterprises strengthened its truck refitting business by paying another $4.2 million in cash to acquire Oklahoma City-based Perfection Equipment, Inc.

Rush Enterprises and other truck dealerships enjoyed a brief spurt in truck sales in 2002, following a two-year slump, because new cleaner-running, and more expensive, diesel engines were scheduled to come on the market in October of that year as part of a federal mandate to cut nitrogen oxide emissions. The new trucks were expected to run hotter, resulting in an earlier need for overhauls and higher maintenance costs. However, truck dealers were well aware that new truck sales would quickly dry up once the cleaner-running trucks came on the market, and carriers held off purchasing until they could determine how well the new engines performed.

Again, Rush Enterprises was better off than most, but management did decide it would be wise to concentrate on its core business. In 2002, it sold off its D&D farm-and-ranch supply business, which was losing money. The company also sold its Michigan John Deere construction equipment dealerships, preferring to focus on the Sunbelt area for its Rush Equipment Center Division. At the same time, the Rush Truck Center Division continued to expand. In a deal that closed in 2003, it paid $5.4 million to acquire Orange County Truck and Trailers, Inc., adding three central Florida Peterbilt dealerships. Later in 2003, Rush Enterprises completed another acquisition, paying $1.4 million for Peterbilt of Mobile Inc., picking up a Peterbilt dealership located in Mobile, Alabama. Rush Enterprises now had 39 truck locations in nine states. As Rush Enterprises entered 2004, management believed that the truck business was in the initial stages of a sharp upswing. If so, the company was well positioned to take full advantage of improved conditions.

Principal Divisions

Rush Truck Center Division; Rush Equipment Center; Rush Leasing and Rental Division; Rush Financial and Insurance Division.

Principal Competitors

American TruckSource, Inc.; Coast Counties Truck and Equipment Co., Inc.

Key Dates:

1965:
The company is founded when Marvin Bush acquires his first truck dealership.: 1995:
Rush Enterprises is incorporated.: 1996:
The company is taken public.: 1997:
A construction equipment division is formed.: 2000:
Rush is named Peterbilt's North American Dealer of the Year.