Preston Feight: Thanks, Tim. What I think is going on is we’re seeing that over the last couple of years, we’ve probably been, as an industry not able to supply everyone the trucks they needed. And I think that there’s a strong vocational market, a strong LTL market, a strong medium-duty market. So we’re now kind of able to build those trucks, and we’re seeing that as a different percentage and increased percentage in our backlog. I wouldn’t differentiate them in margin. They can both be good margin products for us. On a percentage basis, yes. And then I think that as far as the larger carriers and the impact of it, I think that it’s really not that different than many years, right? It’s not substantially different. So we don’t see anything dramatically affecting our model. We’ve had some of the biggest carriers ordering a lot of trucks, and we’ve had some small carriers ordering trucks. But it’s all kind of within the normal boundary.
Tim Thein: Okay. Thank you.
Operator: Thank you. Our next question today is from Matt Elkott from TD Cohen. Matt, please go ahead. Your line is open.
Matt Elkott: Thank you. If I can go back to the order question, the demand question, it seems you guys continue to see stronger demand, stronger orders in North America than the industry orders we see on a monthly basis. Is this still primarily a function of your higher vocational mix? Or are you gaining tractions in other areas that were not super aware of?
Preston Feight: We are the vocational market leader. So there is some benefit in that. And as I mentioned too, I think our teams have done a great job over the last several years developing a new product lineup, which is the newest in the industry, which is helpful to us and I think has given us good backlog. If you think about it at the fundamental level, we tied up in a lot of different things. But at the fundamental level, our goal is to build great trucks for our customers to provide them the lowest total cost of ownership. And when they do that, then they order the trucks. And we think we’re doing that well. The products are performing well. They’re the best in the industry, and that’s contributing to our order visibility.
Matt Elkott: Got it. And just one follow-up question. As we look into a mild decline in production this year. Do you think you’ll do more vertical integration of engines to kind of cut costs? Or is that something that is independent of the cycle?
Harrie Schippers: Yes. With the — we’ve built a record number of trucks last year. MX engines that is for North America, Europe worldwide, I would say. Yes, and the investments that we’ve been continuing to make in our engine manufacturing capacity. We — that will help us to grow engine penetration in North America this year. That’s a very good position to grow that percentage this year.
Matt Elkott: Great. Thank you very much.
Operator: Thank you. Our next question is from Scott Group from Wolfe Research. Scott, please go ahead. Your line is open.
Scott Group: Hey, thanks and afternoon. So you talked about used prices normalizing in Q4. I’m just curious your outlook for used prices from here, if you think we’re bottoming yet or if you think there’s further risk unused.
Preston Feight: Harrie, do you have any thoughts on that?
Harrie Schippers: Used truck prices did come down in North America and Europe during the year. Now I think in the fourth quarter, North America came down low single-digit. And we do see some stabilization happening at these levels. That’s why we expect things to continue at a normal level that where used trucks are maybe at breakeven, that kind of level. That’s a reasonable projection, I think.
Preston Feight: The only thing I’ll add is that volumes continue to be good in that space as well. So we watch both price and volume, and it seems like it’s a – it’s a big change from what it was, but it’s still not at a bad level.
Harrie Schippers: It’s more normal now.
Preston Feight: Yes
Scott Group: Okay. And then just more theoretical on this sort of record gross margin, price cost spread. I totally understand what you guys are saying with new products, but it also just strikes me that this is a pretty consolidated market. In an environment like we’ve seen in the last couple of years with heightened inflation, is it — is it just that maybe you and others just got enlightened to the fact that you maybe had more pricing power than maybe you previously thought? Is that right? Is that what’s happening? And ultimately, is that — do you think that’s sustainable? Is this ultimately just a new range of gross margin?
Preston Feight: My view is that the team of PACCAR, people around the world, whether in the factories or the engineers or the controllers organizations over the last several years have done a fantastic job of building a really robust business. And it’s lean, it’s efficient and it produces great products for our customers. And I think that’s the driving force between the margins that were generated as parts business. It’s the truck business. That strength and focus of serving our customers and our shareholders are working really well.
Scott Group: So in your mind, the high teens is the new sort of normal?
Preston Feight: Well, what we shared with you is the first quarter we think is 18.5% to 19%. And — that’s pretty darn good.
Scott Group: Yes, for sure. Okay. All right. Thank you, guys. Appreciate it.
Preston Feight: You bet.
Operator: Thank you. Our next question is from Michael Feniger from Bank of America. Michael, please go ahead. Your line is open.
