Robert Lyons
Thank you, Shari, and thank you all for joining the call this morning. Appreciate the time. As I talked to Tom Ellman last night about his schedule for today, I volunteered to sit in as de facto CFO in his absence. It also occurred to me that while I spent 14 years in that role previously, Tom is far better at that job than I ever was. And so you're stuck with me today for finance-related questions. But happy to have Paul here with me to talk about anything you might want to discuss in the North American rail market.
With the uncertainty around the impact of tariffs in North America and abroad, along with the general uncertainty and economic conditions, I thought I'd open with some brief comments on those topics and hopefully address a number of your questions upfront.
First of all, the impact of the recent tariff announcements has to date had very little impact on our business and financial results, I think, reflective of what Shari already outlined this morning. That's not surprising given that our installed base of assets around the globe is generally a long-term lease with strong customers and we enter each year with a pretty predictable level of cash flow from our lease portfolio.
On a longer-term basis, however, we're an economically driven company and a sustained pair back in economic growth as a result of tariffs or global tensions could affect GATX at some point. We certainly aren't seeing that today, but it's not outside the realm of possibility.
Talking about each of our markets separately, we'll start with Rail North America. Here, our customers continue to need the railcars that they have in their fleets today, and you see that through the really high renewal success rate that we had and also the LPI at 24.5%. In short, our customers continue to need the cars that they have in their current fleet. Additionally, the supply and demand across the North American rail new car market remains largely in balance.
We're seeing the railcar builders being very disciplined about their production plans. On a direct basis, as it relates to tariffs, we do source railcars out of Mexico. However, previously enacted exemptions for cross-border movement of cars remain in place, so there's no direct impact on the cost at this point.
General inflationary factors remain in play, and that could continue to drive upward pressure on new car costs. As we've noted before, as the cost of the new car rises, there's a residual benefit to those who own large fleets of existing cars like GATX.
That said, on the direct impact, the broader risk of tariffs in North America as it is globally more indirect. For example, economic conditions, obviously, we can't dictate economic conditions, but we're prepared for any scenario.
Another would be commodity flows. If there are certain commodities that either benefit or are hurt by tariffs, we could see that impact and demand for certain car types. It's really difficult to predict which car types, I'm not even going to try, but I will remind people that we have an incredibly diverse fleet.
We have over 800 customers, and we serve and move over 600 different types of commodities in our cars. So that provides a lot of flexibility. Interest rate movements are also hard to predict these days, but we have a really strong balance sheet and an investment-grade rating. We have a lot of funding flexibility.
So to summarize in North America, the direct impact of the tariffs are limited and not impactful in the near term, while the longer-term risks are indirect and certainly more difficult to assess right now. But as many of you know, at GATX, we've seen pretty much every environment imaginable through our history, and we're fundamentally wired for and prepared for challenging situations should they occur.
To the extent there are changes in market fundamentals, we'll obviously share that with you when we see it, as we always do. But GATX Rail North America is a nimble organization, and we will adjust if needed. In fact, in times of uncertainty, we often see some of our most attractive investment opportunities.
In Europe, we're seeing stable demand for the largest portions of our fleet, and you saw that in their utilization numbers as well. As for the direct impact of tariffs, we source cars and components largely within Europe. So there are no direct impacts of tariff -- from tariffs today of note.
But similar to North America, the longer-term impacts are indirect, and they potentially are meaningful, also very difficult to quantify. The economic environment in Europe was already pretty tepid and that was before the developments over the course of the last month.
Germany is a very important market, the largest market we serve, not only for the automotive trade but also Germany serves as the base for global chemical trade and the economy is predicated and predicted to slow as global tensions rise. So we'll have to navigate that.
But similar to Rail North America, GATX Rail Europe is a great franchise, very strong diverse fleet, and high-quality customers across a range of end markets. I'm highly confident our experienced team there will adapt and adjust as needed.
In India, similar to Europe, there's a closed-loop system with railcars and most components being sourced in country. So the direct impacts are muted. We also have the benefit in India of the fact that the overall infrastructure development needs remains so strong, the tariffs or global turmoil even over a medium term will be unlikely to alter the long-term outlook for infrastructure investment.
Turning to engine leasing. Demand for spare engines currently remains very high, and the need for spares is robust. In fact, our investment pipeline at RRPF, that's our joint venture investment with Rolls-Royce, that pipeline is among the strongest across GATX.
That said, a slowdown in global air travel, if it occurred over a protracted period, could temper demand for engines. We're always prepared for that scenario. And the team at RRPF and at Rolls is always prepared for that scenario, especially given that past macro shocks to travel like 9/11, the pandemic, or the war in Ukraine.
They happened really quickly, and they had a significant negative impact on travel and engine demand. However, what those situations also showed is that global air travel is extremely resilient as is the demand for the underlying assets and our engines. They are a great store of value through cycles.
And Trifleet, our tank container leasing business, the dynamics are a bit more nuanced. The hard asset itself, the tank container, that asset moves freely across global markets and does not attract any tariff risk as long as the assets continue to move. But the products within the tanks, particularly chemicals, could attract tariffs, depending on their origin and destination.
For example, chemicals moving between China and the US would be subject to tariffs, and you could see some demand on the impact for our assets. At present, we've not seen that. We have not seen a material impact on demand. But obviously, that's something we and others in the industry are watching pretty closely.
I'll summarize and close my comments by stating that once again, our focus, as always, at GATX is on the long term. Our assets hold value through cycles. Our customers are strong, sophisticated, and resilient, and the assets we provide to them serve a critical function.
As evidenced by the fact that we reiterated our full-year guidance today, we remain confident in our results for 2025. Like most companies, we'll remain on alert for signs of more direct impacts and demand fundamentals as a result of tariffs. I'd certainly prefer a more stable environment. I think most corporations would. But it's something we are -- it appears we're entering a period of greater macroeconomic volatility.
Historically, GATX has not only managed well through uncertain times, but we've thrived by finding unique investment opportunities. And we'll strive to do the same as we navigate this market. So with that, we'll open it up for questions.
Operator
(Operator Instructions) Bascome Majors, Susquehanna.
Bascome Majors
Thank you for the candid discussion on the concern and uncertainty around the second and third order impacts of tariffs. Can -- is this an environment where you feel like you would have raised guidance if it weren't for that uncertainty and the unpredictability of it in the back half of the year?
Robert Lyons
Bascome, thanks for the question. Ordinarily, GATX doesn't really adjust earnings in the first quarter. We only provide annual guidance, as you know. And it's a little difficult for us to kind of assess the full year, one quarter out of the gate. We tend to be a little bit more deliberate. When we have raised guidance in the past or changed guidance in the past, it's usually been at the midyear point.
So even this -- forget tariffs, forget the macroeconomic volatility, the uncertainty, I think if we look back in history, the first quarter, we usually reiterate, and that's what we're comfortable doing today. The first quarter absolutely played out the way we thought it would, and our expectations remain right in that $8.30 to $8.70range. There was nothing that occurred during the quarter that would materially alter our thoughts around that.
Bascome Majors
Thank you for that. And we've certainly seen that mid-year pattern over many years, and I appreciate you reminding us. Higher level, you guys and particularly Paul at the REF conference a few weeks ago, really articulated maybe the uniqueness of this cycle for railcar leasing in your businesses. And that you've really had a tremendous amount of growth in your core markets without help from really railroad volumes, mostly from supply-side inflation, be it steel prices, components, labor that's you're driving up the cost of new cars and replacement costs of many of the decades old assets you own but also a mix of reduction discipline and perhaps constraints on the railcar OE side in North America.
I mean, if anything, the glass half full take here from our perspective would be that new railcar production is getting more, not less constrained in this environment. And certainly, some of those inflationary factors are ticking back up after ticking down for the better part of a couple of years from the pandemic peak.
How do you feel about the supply side thesis today? And is it really just we have to balance some of the demand destruction potential, even though demand really hasn't been a driver of this up cycle in railcar leasing.
Paul Titterton
So Bascome, this is Paul speaking, and thanks for the question. It's a very good question. And yeah, what I would say is we continue to believe in what we've been calling the supply-led market thesis and the self-correcting market thesis, which is basically to say exactly as you described that it is relative to history, expensive to build, and expensive to finance new railcars. And that has been a constraint on new car production.
If you look at the ARCI numbers for the last couple of quarters on an annualized run rate of around 20,000 cars of orders per year, which is well below the replacement rate well below what we've seen in history. And as you correctly note, that is supportive of our business when we have a large and diverse installed fleet of railcars.
So that thesis continues to hold. And just to add to that, I would say that we talked about this the self-correcting market, as we've described it, which is to say, since there isn't an overhang of idle cars in the market, in any one of our markets when we see a little bit of weakness, we tend to see scrapping pick up, which again is supported by a fairly high scrap price right now. And the market corrects back into balance fairly quickly, which is as compared to, say, the great recession when that did not occur. So yeah, overall, the thesis that we've articulated that this is a supportive market for our core installed fleet really continues to be the case.
Robert Lyons
That's, I'd add to that too that when we provided our guidance at the beginning of the year, I'd have to look back at my specific comments. But I believe I indicated that, our forecast, our expectations are certainly not predicated on car load growth. To be clear, we would welcome that, but we're not dependent on it. We came into the year expecting very muted, car load growth. But other factors at play are very much beneficial to GATX in this market.
Bascome Majors
Lastly, and then I'll pass it on. When you think about the sort of demand risk that you highlighted and the uncertainty that entails in a lot of your markets. Do you feel more risk and uncertainty and variability and say, aerospace versus North American rail or Europe and India rail. I just want to understand maybe directionally, if you could rank order where you feel visibility is more uncertain versus more certain?
Robert Lyons
Sure. And I would say, if I had to kind of rank order all the markets we're in or the regions of the world that we're in, probably the one right now with the most uncertainty would be on the rail side in Europe. Just because of the different factors at play there.
And we're already -- we're coming into the year with pretty minimal GDP growth in Europe. But again, we have a large base of installed assets in that market, highly predictable cash flow coming into the year. So if there's a little bit more stress in that market, it's not really going to change our overall outlook.
Bascome Majors
Thank you.
Operator
Andrzej Tomczyk, Goldman Sachs.
Andrzej Tomczyk
First, could you just provide more color on the macro volatility that you mentioned and how it might specifically impact the North America railcar segment and then geographically, if you could get into that as well. I know you touched on it a little bit earlier but are there any comments from customers that you could pass along sort of intra-quarter or here into April that we could take away?
Robert Lyons
Sure. I'll start there, and Paul can fill in too if he wants to add. But from a commercial perspective, I think the volatility and the uncertainty of the markets where we see that manifest itself is in our customers' longer-term growth plans. The more difficult it is for them to predict three to five years out, the more difficult it is for them to size their fleets accordingly and consider growth opportunities in their railcar fleets.
So if we see anything, it's maybe longer decision periods or some uncertainty among our customers. The flip side of that, as I mentioned at the open, is the installed base, the cars they have in their fleet today with a 80%-plus renewal success rate and roughly 25% LPI.
It's pretty clear they're holding on to what they have and committing on those long term. So that's a very good sign. From a pure intermediate standpoint in terms of fleet growth, it's a little bit tougher, and that's maybe where we see some hesitancy in terms of committing.
Paul Titterton
Yes. And I'll just add, I think echoing everything Bob said and just adding that to some degree, is what customers say and what they do. Our customers in North America certainly talk about uncertainty. But as Bob said, when you look at our renewal success and our pricing, they're holding on to the assets that they have.
And I think that speaks to the fact that uncertainty cuts both ways, and our customers don't want to let go of the assets that they have, even if they feel that uncertainty because they don't -- they're not necessarily saying we definitely need to shrink our fleet, in fact quite the opposite. I think they're saying we do need to hold on to the assets that we have today.
Andrzej Tomczyk
Thanks. And just as a quick follow-up there. In North America, are customers buying into the notion that manufacturing could come back sort of to the US, Mexico, Canada, the reshoring theme. Is that a consideration for customers? And I know you mentioned not letting go of their fleet but is there a consideration that customers could actually increase the fleet over time given those near-shoring trends?
Paul Titterton
So it's a great question to which I'm going to give an unsatisfying answer, I'm afraid. We have a very large customer base, as Bob said, over 800 customers in North America. And we get a wide range of comments from them on that.
I will say we have some customers that buy that thesis, I'm going to say that they're going to lean into that thesis. We have others who don't, and it really varies widely from customer to customer, from segment to segment. I will say to the customers that have commented that they do buy that thesis, it's very much with a long-term vent. It's not something that's going to affect us one way or the other in the immediate term.
Robert Lyons
Yeah, and to follow on Paul's point, we renew roughly 20,000 cars in a given year. That's a lot of at-bats with that 800-plus customers that we have in North America. And we survey them and talk to them all the time. If there was a clear direction, we could pull from that, we'd share it with you. But it's, as Paul said, it's kind of getting 800 different opinions at this point in time.
Andrzej Tomczyk
No, it makes sense. I appreciate that. And also thanks for the tariff comments earlier in the opening remarks. I just wanted to clarify if you are seeing new railcar prices currently going higher, already and given this tariffs on steel inputs. And then how much are you able to pass through to customers if that is the case or if that will become the case? Thank you.
Paul Titterton
Sure. Yeah. So what I would say is the general -- and I'm going to talk by the way, about the general level of new car prices as opposed to the price of GATX specifically pays because, obviously, our contracts at the builders are confidential. But the general level of new car prices right now, we do see at relatively high levels.
I would say, for some freight car types, we're seeing them pretty close to record highs for tank cars. Not as close to record highs, but certainly close. And for context, when we look at both hot-rolled coil steel and plate steel, we're seeing input prices that are certainly at 12-month highs and are quite high relative to history. So you are definitely seeing the general level of new car prices quite high these days.
In terms of the ability to pass it on to customers, what I would say is most of the pricing events in our fleet are in our existing fleet. And so the relationship between the new car price and the price on the existing fleet is very indirect. It absolutely has an effect because, of course, for some of our customers, the alternative to renewing our cars is procuring a new car. So there's certainly a relationship there, but it's indirect.
In terms of the relationship between the new cars we're buying and the price we're getting, what I'll say is we continue to earn reasonable returns on our new car deployments. And I would say those returns maybe are a little bit compressed relative to where they've been, but they're still in the acceptable range.
Robert Lyons
Yeah. And I think it's fair to say, renewing cars in this market obviously, at 80%-plus renewal success rate. We're doing very well on that front. New car placements, it's more competitive. It's definitely more challenging. And the fact that you have other lessors and the builders all pursuing a limited pool of new car opportunity. So the pricing is a little bit more aggressive on that front.
Andrzej Tomczyk
Got it. And then lastly for me, just on the secondary market. Valuations have they gone higher on the back of those new car commentary? And then what are the expectations for the remainder of this year for remarketing income? Is it still down year-over-year just to bake in some conservatism? Or is that still the expectation? Thanks.
Paul Titterton
Well, we actually did not necessarily forecast, or we budgeted a modest -- a very, very modest decrease in remarketing income. But essentially, we budgeted a year that was going to be a lot like last year from a remarketing standpoint. So we budgeted as though this was going to be a good remarketing year, and we continue to have that view.
Evaluations in the secondary market have held up nicely. And whether that's a direct result of the fact that new car pricing is high, it's difficult to say, but that very likely has something to do with it. But in general, we are still seeing a good number of participants in the market. So the breadth and the depth of the market is good. We get good responses to the packages we put into the market. So overall, at this point, I would say we continue to see a very supportive secondary market within North America.
Robert Lyons
In 2024, we had roughly $120 million of remarketing income. We came into the year and said we thought that number would be between $100 million and $110 million, this year. Still feel very good about that. And that is a very, very healthy marketing year for us. So optimistic about that.
Andrzej Tomczyk
Thanks appreciate the time.
Operator
Brendan McCarthy, Sidoti.
Brendan McCarthy
Just wanted to start off looking at the engine leasing business. Looks like a really strong quarter here. I wanted to tie that into the -- into your CapEx guidance. I think you were looking for about $1.4 billion heading into 2025. Just curious if kind of the macro uncertainty gives you pause on that front, I guess both from a rail car perspective and also from the engine spare aircraft engine perspective.
Robert Lyons
Yeah. For direct investments in engines coming into 2025, our forecast was similar to '24, which was right around $250 million for direct investment in engines. Still expect somewhere -- to be somewhere in that range. It could move around a little bit depending on Rolls-Royce's sales activity as well.
On top of that, I would add that we expected Rolls-Royce and Partners Finance, our joint venture activity. Those investments don't show up directly in our cash flows. It's all through the JV. They were anticipating a really strong year of north of $800 million. And as I mentioned in my opening comments, that pipeline's really strong.
So I think we'll be there or above with -- at the JV level. So a really good year of investment activity. One nuance about that business, even in uncertain times, if air travel declines and it happens over a protracted period, oftentimes, you see airlines look for liquidity.
And so say a leaseback opportunities with airlines actually increase during more challenging times. So I'm sure our team at Rolls-Royce and Partners Finance will be on the lookout for that. Overall, investment and volume for the year, you hit the number on the head. We expected coming in to be at $1.4 billion.
We did just under $300 million in the first quarter totaled across GATX. Still expect to be in that same level, that same $1.4 billion. And at Rail North America, we were in the $800 million range for 2025 on our expectation.
Still see that occurring. May come off. I mean part of that's depending on secondary markets. So it could come off a little bit. But anything up in that $800 million range is a really -- by historical standards, a really strong year for North American Rail.
Brendan McCarthy
And maybe just from a demand perspective, you mentioned if we see a pullback in international travel, that could impact the business. But can you tie that into maybe how the how or I guess maybe can you discuss how that ties into the contractual mandated maintenance schedule of these assets?
I think it's every three to five years or so there's mandated maintenance.
Robert Lyons
Are we talking about it on the engine side of the business?
Brendan McCarthy
Correct. Yes.
Robert Lyons
Yeah. We don't see any significant change in the maintenance profile or expectations for maintenance activity within the engine leasing side whether directly owned or at RRPF.
So no significant change there.
Brendan McCarthy
Switching gears. Just wanted to talk about the balance sheet. I know you maintain a very strong balance sheet investment-grade ratings. And I saw recourse leverage tick down in the first quarter.
Are you comfortable with where interest expense is now? And I guess what interest rate environment is really baked into the guidance for this year?
Robert Lyons
Well, we're right in the zip code of what we baked in for the year. So maybe and so no significant pick up or degradation from where rates are today versus what we thought coming into the year.
Total interest and depreciation last year was just over $500 million. We expected that number to go up meaningfully in 2025 in the magnitude of $40 million. And we're still on course for that. So we did anticipate interest rate increase in 2025.
In the first quarter -- nothing in the first quarter would change our estimate of where we're going to end on a full year basis.
Overall balance sheet, yes, still in very, very strong condition. Leverage is at a very good spot. Our investment-grade rating is extremely important to GATX. We're mindful of that all the time. It gives us great flexibility and funding.
And so we're going to keep leverage kind of right near where we're at today.
Brendan McCarthy
And one more question for me. Just wanted to take a look at Rail Europe. I think I saw that there was a pretty sizable amount of rail cars coming up for renewal in 2025.
Can you touch on the renewal success rate there and maybe how that ties into the outlook for Rail International?
Robert Lyons
Yeah. The lease terms in Europe are always shorter than they are in North America. So where we turn maybe a fifth or so of our fleet in a given year in North America, it's about a third that turns every year in Rail Europe.
So that's typical of that market. It's just historically that and that's industry-wide. That's not unique to GATX Rail Europe. It's a two- to-three-year lease market. So nothing out of the ordinary there.
Our renewal success rate was pretty high other than I would say. And we continue to see significant challenges in the intermodal market. We've talked about that on prior calls. So our utilization in the intermodal fleet is lower than -- certainly lower than where we'd like it.
It's going to take a while to come back. So that is putting some undue pressure on overall utilization at GATX Rail Europe, but we expected that coming into the year.
Operator
Justin Bergner, Gabelli Funds.
Justin Bergner
To start, are sequential lease rates still trending flat kind of on a spot basis?
Robert Lyons
Actually, this quarter, they were down slightly from where they were in the fourth quarter. Again, nothing that we didn't anticipate coming into the year, but on a sequential basis, down a little bit.
Justin Bergner
It seems like you were pretty bullish on the secondary market in the comments in your press release and the comments to start the call. Would you say that your view of the secondary market has strengthened from three months ago or is it about the same?
Robert Lyons
I would say it's very much the same what we expected coming into the year. We didn't expect the macro volatility that's gone on kind of whether it be tariffs globally, what have you.
Interest rates moving pretty sharply from week to week, that we did not anticipate coming into the year. So I would say the fact that the secondary market has held up, has continued to be as strong as it is and the pipeline looks as good as it is, I think it speaks volumes about the quality of the underlying assets.
Paul Titterton
Yeah. And I'll just add too. There is capital that it wants to invest in these assets and because the new car market looks to be a pretty small market this year, that capital, if it wants to invest, is going to flow into the secondary market.
And so that's one of the reasons for our confidence in the continued strength.
Justin Bergner
Just some quick clean up questions. Your cash balance ending the quarter was higher than normal. Is that just money that you're getting prepared for investment needs later in the year?
Robert Lyons
Yeah. Certainly, higher than normal. We did one bond offering during the first quarter as we were looking out over the course of the year. The bond market was fairly unpredictable during the first quarter.
We're always looking long term on our funding needs. We saw a relatively quiet period for -- over the course of a couple weeks. So we took that opportunity to do an $800 million issuance in advance of when I think historically we would have would have done so, but the demand was great.
We did both 10s and 30s at a very good coupon and essentially, pre-funded a pretty significant portion of our financing needs for 2025.
Justin Bergner
And then lastly, within the RRPF joint venture, I mean the equity income was high. Was there an unusually high amount of secondary sales and gains on secondary sales in the joint venture this quarter?
Robert Lyons
No. We came into the year expecting our total income at the RRPF joint venture to be up $20 million to $30 million versus where we were in 2024, with an engine leasing total, not just within the RRPF.
Baked into that was the expectation that the income mix at RRPF would be about 65% operating income and about 35% remarketing income. And that's almost exactly what it was in the first quarter.
Justin Bergner
It was only 35% or so of remarketing income in the first quarter. It's good to know.
Operator
Bascome Majors, Susquehanna.
Bascome Majors
Justin just asked about the sequential lease rate trend. I think you said down a little bit. Is there any delineation between tank cars and freight cars in that? And maybe historically, you've kind of talked about your long-term lease rate expectations and whether cars, types, by the way you define them, percentage that are above or below, just any update on how you look at the lease rate attractiveness in a historical context over a little longer term?
Robert Lyons
Sure. No significant delineation between tank and freight in the first quarter in terms of the sequential -- the change in the sequential rates. Overall, lease rates, I would say in the first quarter by and large came in as we expected.
No significant deviation from the forecast we had in place. The LPI came in very consistent with what we thought. So and I would say on a historical basis, we're continuing to see lease rates at very, very attractive levels, and Paul can comment more on that.
Paul Titterton
Yeah. Relative to our model, we have a long run expectation for every car type in our fleet. And in general across the fleet rates remain elevated relative to our long-term expectations.
So and obviously, we're constantly refining and revising our model on a regular cadence to reflect additional data gathered. But yes, rates continue to be strong relative to our view of long-term levels.
Operator
I will now turn the call back to Shari Hellerman for closing remarks.
Shari Hellerman
I'd like to thank everyone for their participation on the call this morning. Please contact me with any follow-up questions. Thank you.
Operator
Ladies and gentlemen, that concludes today's call. You can now disconnect. Thank you and have a great day.
