Jerry Revich: I’m wondering if you could just talk about the cost performance. So really interesting to see operating cost per truck down about $1,000 sequentially first quarter versus fourth quarter. As we think about potential for continued improved supply chain performance, how should we be thinking about the pricing part of that equation as costs normalize for you folks? Should we think about pricing following suit? Or are we thinking about delinking the two based on the value proposition at this point?
Preston Feight: Our focus is on making sure our customers have the best trucks in the world and we’re doing that, and that has a value to them. And so that’s kind of where we see ourselves positioned in the market, and that’s what we would expect to continue as we look forward.
Jerry Revich: That’s clear. And then looking at your pretax profit per truck this quarter, so 17,500 in 2019, pre-COVID, you folks had a high of 10,000. So really outstanding performance. I’m wondering, can we just step through what proportion of that would you attribute to the higher value add of the new products versus a difference in the marketplace and competitive discipline? How would you counsel us to think about the relative sizes of those pieces and any others you would add?
Preston Feight: I would say that 2018, 2019 were very good years as well. So you put them in kind of comparable markets. And then I would say a lot of that value is really because of the investments we made in the products and the trucks. But as we’ve said earlier in the discussion, it also adds to the outstanding performance of the Parts team and what they’re doing. And so it’s trucks, the value they create, it’s parts, the way they support the customer, and I would add the third leg of stool has really becoming technology and how we’re employing technology, which is helping us a lot to provide reasons for people who want to buy the PACCAR premium products.
Jerry Revich: And I’m wondering, can you just expand on that point and in technology? Are we talking about the functionality of the telematics? Or what specific technology? Can you just expand on that last point, if you don’t mind?
Preston Feight: Yes, sure. It’s the use of telematics, which is also a great opportunity for us, and we announced that we have a partnership, an enhanced partnership with Platform Science, which is a great partner for us in terms of how we can connect the vehicle, bring useful apps to the customers, and that’s accretive to their business growth. So we like to be participating in that. I think the other part of it is with the dealer systems. And we mentioned managed dealer inventory a lot over the years, but now it’s like in a complete seamless operation with the dealers of them getting the parts based upon the needs as defined by PACCAR Parts. So that’s a great way to see the business growth, and we continue to see that expanding over the years.
Jerry Revich: Great. And if I can just sneak one last one in, Harrie. The parts performance, really strong as well in the quarter. Is this the new run rate for parts percent margins? Or as volumes are going to be down seasonally should we think about margins being good, but maybe not as good as 1Q?
Harrie Schippers: We don’t guide for parts margins typically in our calls, but 32%, like you said, was really strong in the first quarter. We continue to grow the Parts business. As the Parts business grows, we leverage the cost structure. So there’s a good basis for PACCAR Parts to continue that strong margin performance.
Jerry Revich: Appreciate the discussion. Thank you.
Preston Feight: You bet. Have a good day.
Operator: Thank you. Our next question comes from the line of Matt Elkott with Cowen & Co. Please go ahead.
MattElkott: Good morning. Just one more follow-up on the parts, what you’ve said on parts already. If you look historically, parts revenue went from 15% of total revenue 10 years ago to 20% in ’22. And I think the growth has been around 8% CAGR versus the remainder of the business at 5%, and it’s been more linear, less cyclical growth. My question is, do you see this level of outsized growth continuing for Parts revenue at a similar level in — for the next five years or so? And is there a sweet spot for parts as a percent of the total that you’d like to see longer term?
Preston Feight: I tell you, we don’t think of that. We think of value creation for the customer. And I think that the Parts business is doing that. That’s why it’s picking up share and it’s picking up overall share of the Parts business. And I think that the trend is that the world is becoming a little bit more vertical for us with our powertrains but also with technology and those things, both will contribute to further parts growth over the coming years. So I think that the value opportunity for the Parts team continues to be there for us.
MattElkott: Okay. Makes sense. And then just any update that you guys might give us on the infrastructure bill and if there’s any kind of demand that can be attributable to that?
Preston Feight: Yes. I think that the amount of spending being done into the economy, whether it’s reshoring or infrastructure is really great for PACCAR. We’re the vocational market leaders. And so as money is spent in the economy, that will be good for us in the long term as well.
MattElkott: Got it. Thank you very much.
Preston Feight: You bet.
Operator: Thank you. Our next question comes from the line of Jeff Kauffman with Vertical Research Partners. Please go ahead.
JeffKauffman: Thank you very much. Just two questions. You mentioned interest rates and the effect on your South American outlook. Can you talk at all as to your dealers with their floor plans and how interest rates might be affecting your dealer base?
Preston Feight: Let me add for one thing and then see if Harrie has any other thoughts. I’d say that structurally — in North America, interest rates are still at a reasonable level. So from a historical standpoint, they’re very much in the middle of the world right — or middle of the road of what history has had — so we’re not very worried about interest rates here. And I don’t know if Harrie, you’d add anything else.
Harrie Schippers: Brazil is a little different story because rates in Brazil are running at what is 14 kind of percent rate, but that’s completely different than what we see in North America or Europe. And — so it gets a little bit more customer and deal retention in Brazil. But like we said, the new trucks come with a lot better fuel economy. So if you’re buying a new truck, the fuel savings for many customers offset the higher interest rate expense.
JeffKauffman: All right. Thank you. And then I just want to pivot to a more forward-looking question. You were talking about the new telematics packages, and I know we don’t have autonomous trucks on the road yet, but everywhere I go, there’s an Aurora Peterbilt truck on display some place. When do you think we start to see revenue potentially from things like connectivity, things that you’re preparing for the customer? And then as we start to see that, does that reported as part of the truck business? Is that a stand-alone business as you think about it? I just kind of want to think forward on maybe some new streams you may generate from these technology additions?
