All right, well, we are back at it. Next up, we have GATX, and Tom from a fellow Chicago. I guess in this case we're snowbirds, right? So, but, I rather than me try to explain GATX, I'll let you do it, Tom, so why don't you kick it off?
Great. Thank you. GATX, for those of you who may not know, is one of the largest railcar lessors in the world. We have about 140,000 railcars, about 110,000 of which are in North America. The remainder are in Europe and India. GATX competes primarily on availability, price, and service for those railcars. The vast majority of our railcars are on full-service leases, which means maintenance is included in the lease offering. Most leases go somewhere in the 3-10-year period, so fixed leases over long-term. Railcars last somewhere between 35-45 years on average. In addition to our railcar portfolio, which is in, again, primarily North America, Europe, and India, we also invest in aircraft engines. GATX has had a joint venture with Rolls-Royce since 1998.
That joint venture has about 400 aircraft spare engines, about half of which are leased to various airlines to have spares when their on-wing engines need maintenance. The other half of those engines are leased back to Rolls-Royce, who uses them as part of their TotalCare maintenance program. So part of that program, when Rolls performs maintenance on an engine, they provide a spare, and they source many of those through the JV. GATX, also in that business, has 29 engines that we own ourselves, for our own account. Those engines are managed by the joint venture, so from a commercial perspective, looks very similar. So those are the key parts of the business. The only other thing I'll mention, in a room full of investors, is GATX has paid a dividend uninterrupted since 1919, so a record that very few companies can match.
That brings up sort of my first question. You guys are largely a capital provider in terms of leasing. Again, you compete against banks in many cases, but have this fantastic, really, really long track record, and what seems like it should be somewhat of a commoditized business. You might not want to tell me, but what's the secret sauce? How is it that you guys can consistently outperform when really you're providing a commodity as a service?
Great. Thank you for that question. So what I will tell you is our investment philosophy is we invest in long-lived, widely held assets with a heavy service component, and where deep knowledge of the asset is critical. That's sort of how we have this disparate rail cars and aircraft engines, because they share those characteristics. Since most of the businesses, rail cars all focus on that. So first, the service component. I mentioned that, our leases are full service. The maintenance we provide, we do 80% of that in our own facilities. Our competitors are all over the place, but they some do zero, and some do almost as much in their own facilities as we do. But the key for us in providing that maintenance is, one, we can do it more economically than if you have to go to a third-party network.
But more importantly, from a service component, when a customer gives us the car up to us for maintenance, they're going to get it back more quickly than if they put it in the third-party network, and they're going to get it back when we tell them they will. So when times are a little rough and they have to give back cars, they're thoughtful about how they do that. And you have to price to market, but if you price to market, someone with a better service capability is going to have their cars held on to longer. So if you look at GATX's utilization over time, it's almost always 98%-99%. During the Great Recession, we got down to 96%, but all of our variability shows up in the lease rate, in that having to price to market component of it. It doesn't show up in utilization.
One of the reasons is one of those factors of variability in an inherently cyclical business; we've largely eliminated exposure to that and only have that rate piece. So that service is number one. The deep asset knowledge is really the second piece of it. GATX has the most diverse fleet in the industry. We have 160 different car types. When we talk at events like this, we try to put them in high-level groups: tank cars, covered hopper cars, open tops. But at a management level, we have 160 different car types and uniquely understand the markets for each of those. And even within those 160 different car types, they can carry a wide array of commodities. A car type a lot of people have heard about is what's called a frac sand car.
A frac sand car is actually a small cube covered hopper. The reason I make that distinction is that you can lease, or you could, when times were in the crude oil boom, you could lease hundreds of those at a time. People did that. They got overexposed to the car type, and then when demand for frac sand waned, they had a problem on their hands. We, with a small cube covered hopper, also deploy that car into cement service, into soda ash service, into roofing granule service. So have many more outlets than somebody that doesn't have the deep asset knowledge and the customer relationships. So the secret sauce is really the combination of that service and that asset knowledge.
Right. So that's the longer picture story. Let's talk about where we sit today. Things have been relatively good, and you guys have, have given guidance for, I think, high single- or 9%-9% acceleration in, in EPS. At the same time, you know, I, I hear the rails talking about, you know, we're hoping, you know, fingers crossed, we're going to see, you know, low- to mid-single-digit volume growth. So how is it that you guys are sort of seeing an elevated level of growth relative to, you know, an okay but not, not terribly exciting broader economy?
So, lease rates have been increasing for about the last 3 years, but that was coming off of a fairly low base, coming off of a weak market. And what happened is supply and demand went from being out of balance to in balance, and over that period of time, we were able to take lease rates up. What generally happens in the industry is when times are good, there's an incentive to overproduce. The last upcycle was an extreme example of that. So with the strong crude oil market, the strong frac sand market, builders got very, very long backlogs, out to 2 years. And what would happen then is someone who knew they needed cars in the future were really forced to guess, "How many cars am I going to need 2 years from now?" and make an order for that.
Sometimes you'd have a railroad making an order for that, a shipper making an order for that, and a logistics service provider making an order for that. So you really had too many cars. Market turned, and there were all these excess cars coming in, which really caused a big decline in the lease rate. We worked through that over time. The what has happened in this upcycle, and it's really different than the last two, is it has been driven by supply and demand coming back into balance without an accelerant. So without crude oil and frac sand, and then the upcycle before that was accelerated by ethanol. There's nothing like that this time. So this market should be much more self-correcting than the last two. You don't have this extreme oversupply. It feels like an upcycle because we're coming off of a downcycle.
It's not because it's extreme on the upside. The market will turn again someday. It's a cyclical market. But when it does, you should see a slower, more gradual decline than you saw the last two times. And if you look at that increase in lease rates that I talked about, over the past couple quarters, you've seen the rate of the increase slow a bit. And the important thing to note is the guidance that we gave for 2024 doesn't count on even more rate increase over what we've seen. What it's really driven by is probably around a third of the fleet has repriced into this stronger market. So you still have two-thirds of it to go. So even at steady rates, which are still much higher than expiring rates, you would see an increase without the need for greater railcar loadings.
And to your point on some of the railroad efficiency, same kind of thing. When that happens, that tends to happen in a fairly gradual way. When railroad performance declines, it tends to be dramatic. It's driven by something like a weather event or a merger or some extreme thing. It improves more slowly. And you do have a wide array of ages of car types. So as that happens in a more gradual basis, you'll see the industry scrap cars, and you'll see supply and demand kind of stay in balance, helped by the fact on a historical basis, scrap rates are pretty good. And then the last thing I would layer on top of that is shippers have been looking for quite some time for sustained, improved railroad performance.
A lot of them will talk about, "I'd like to ship more via rail, but I'm not totally confident in the railroad's ability to deliver the service I need." If you see sustained improvement, I think some of that potential loss from improved velocity and improved performance should be offset by some additional traffic that moves from the road to the rails.
Interesting. So, given that, well, let me stick to sort of the fleet part of it for a moment. Where are we in that replacement cycle? You know, are we building more than what's coming out, or is there a replacement bubble or anything like that?
No, that's really the nice thing is it's largely the total national fleet has declined slightly over the past few quarters, but it's basically been a steady state. That's what I'm trying to contrast from the last couple of upcycles. There is not an extreme event or a cliff or a wall that we're looking at. We're looking at a more gradual replacement.
Okay. So given that backdrop, how are you thinking about even beyond this year, but going out for the next few years, assuming a relatively stable economy? Are you optimistic that, while appreciating that lease rates have begun to flatten a little bit, are we sort of approaching a top, or do you think that there's more room to go? And then associated with that, how do you think about underlying asset values at the moment?
Yeah. So first of all, I'll reiterate something that people who have followed us a while know. We only give guidance for the current year.
Sure. Yeah.
What I would tell you is, the setup and our guidance of $7.30-$7.70 EPS is based on the assumption that things pretty much stay the way they are today, which is the existing car fleet relatively in balance. Customers are reluctant to give up cars. You see our renewal success percentage. The percent of customers that renew the lease when it comes up for expiration is over 80%. Utilization, 99%. So the ones that don't go on lease with somebody else. We expect all of that to continue, and that environment, that guidance level is just counting on that sustained lease rates that we're seeing going forward. We also announced that last year we did $1.6 billion of investment across each of our segments, and we expected similar investment opportunities this coming year.
We expect to continue to see something akin to what we've seen in the past. Going back to, I think it was the first question. Hard to say what'll happen long term, but because you're not working, the industry isn't working through this big oversupply. It should be a more gradual decline at some point.
Okay. And maybe while we're sort of that, well, actually, how are you thinking about the asset value side?
Oh, I'm sorry. Yep. So, we, we've had really strong gains on sales of existing cars. So GATX regularly sells rail cars with leases attached. In 2023, we had over $100 million of gains on sales. In our last earnings calls, we said on our last earnings call, we said we expected 2024 to continue to be strong, maybe down $10-$20 million from this year, which was a record year. And the reason for that is cars with leases attached remain very, very desirable to a lot of buyers in the industry. And part of the reason for that is the with leases attached part. And a lot of companies that buy cars in the secondary market don't have the same origination capability that a GATX does. So a part, a core part of their business model is buying cars with leases attached.
Now they're going to, you know, they're going to buy them at a price that makes sense to them, but it's something where they're going to be showing up and interested in buying those cars. And because of the strong leases that we've put on cars over a period of time, we definitely continue to see the ability to generate those going forward. And just to put it in context, over a 10-15-year period, an average year for gain on sales is something like $60 million. So even down 10-20 from last year's, I think it was $112 million, is still strong by historical standards.
Right. And so as part of the calculus here, you're able to do a better job of putting leases on, and then the people who you might sell them to, lease rolls off, becomes less valuable to them, but you have a better sourcing ability. You can buy it back and rinse and repeat. Is that part of it?
Yeah. So, no, and so part of that, GATX is on both sides. We buy cars in the secondary market, and we sell cars. And I, for obvious reasons, won't get too granular here. We're very thoughtful with that diverse fleet about what we're selling and what we're buying. When we make a decision to sell, it is primarily for fleet optimization purposes. We want to maintain that most diverse fleet in the industry. So if we feel like we're long on a particular car type, maybe long with a particular customer, or even long in a particular expiration year, we have too many coming up in a single time, we'll sell those off. And then, of course, we will sell cars where we think the market is valuing them higher than we do over the long term.
Everything we do is a discounted cash flow basis. We've been in the business over 100 years. We have a really good idea of what that car will cost to maintain over its life and what kind of lease rates we'll be able to put it on. When we do that cash flow and compare it to what the market's offering, if that's out of balance, we'll sell. Similarly, we're doing the same thing on the buy side. And the cars that we look to buy, we think the market is not valuing those as strongly as we can earn over its life, as well.
Got it. So, where at the moment? Let's stick with the rail cars. Where are you seeing the most incremental demand and, you know, customers ask what types of car types are the customers really eager to transact with you on?
Yeah. So from a leasing perspective in North America, the vast majority of car types in the fleet are strong. Supply and demand are in a good position. The ones where I'd say maybe not quite so much are the same ones that have been the last few years, which are energy-related, coal cars, small cube covered hoppers that move frac sand. But by and large, really strong. And not to take you out of order at all, but the one part of our portfolio internationally that I would call out as being a little bit weaker is intermodal cars in Europe. Europe overall, same thing, very strong, you know, upper 90% utilization. The exception to that is the intermodal market in Europe has been weak for a while. And the good news for GATX is that represents about 6% of our fleet in Europe.
Let's talk about Europe for a minute. You know, the vast majority of what you do is in the United States. There's Europe. There's India. Maybe strategically, talk me through how you think about, other than just diversification, where those make sense and what the bigger international plan is for the company.
Yep. So, really need to differentiate Europe and India. In Europe, largely, it's similar to North America. Mature market, well-understood leasing, competing on service, price, and availability, all those factors are the same. What is a little bit different is you have the same stability and utilization across the industry, but you have much more stability in lease rates too. So in North America, in a really strong year, a renewal rate might be 30% higher than an expiring rate. In a really weak market, it might be 20%-25% lower than an expiring rate. In Europe, historically, those numbers have been much, much closer together, maybe a couple% either direction. And there's two reasons for that. One of them is that the replacement cycle, the European fleet's a little bit older, so they have a higher percentage of cars coming off each year.
But more importantly than that is the production capacity in Europe is roughly equal to how many cars expire each year. So you don't get that boom bust like you do in North America. In North America, historically, the industry could produce 80,000, 90,000 cars. It's probably less than that today because there's been some capacity closures. But it's still well in excess of replacement demand. You'll get different numbers depending on who you ask, but we think it's around 35,000 cars a year. So Europe doesn't have that. But other than that, it in a lot of ways, really similar to what you see in North America. The other exception is real effort in Europe to take traffic off the road, put it on the rails, primarily for environmental concerns. India is a growing market. GATX was the first company to go into India.
We worked with the Indian Railways and the Indian government to introduce private leasing of rail cars to India. We did that in 2012. It took us about five years to get to 1,000 cars. On our last earnings call, we announced that we expected to get that fleet to get over 10,000 cars, sometime during 2024. So definitely a growing market. Most of that growth has just come from getting the industry more familiar with leasing and getting the Indian Railways to approve more rail car types. They don't approve all rail car types at once. We expect that to even accelerate going forward because the Indian network is primarily a passenger network. The Indian government is investing billions in a dedicated freight corridor, which will be lines that only move freight cars. They've already invested $10 billion or so with more to come.
As that comes online, the growth that we've seen in India should benefit even more from that.
I want to ask more about that, but I'm running out of time, so I need to talk about the aviation business. You guys obviously have the joint venture with Rolls-Royce. It has been, correct me if I'm wrong, it's been something aircraft and aircraft engines have been something that you guys have done over the years, but not always as consistently, or there's been sort of a cyclical aspect of it with respect to your own participation. Maybe, and this is a long-winded question, but, it's been very, very topical lately with everything that's been going on with Boeing and everything else. How are you guys thinking about where that fits into your portfolio and where you expect, you know, where you expect it to go within GATX?
Yeah, just for historical context, GATX formed a joint venture with Rolls-Royce for the leasing of aircraft spare engines in 1998. We've been a consistent investor in that over time. Business we've loved for reasons I'll get to in a second. What's been different is we used to invest in airframes and aircraft. That was not a good business for GATX. We didn't have the scale to participate in it meaningfully. You have to be able to buy a lot of aircraft at once, something GATX couldn't do. We exited that. The reason we like the aircraft engine business is it has those characteristics we like: long life, essential use, heavy service component, deep asset knowledge that we get with our partner Rolls-Royce. The vast majority of that fleet is Rolls-Royce engines.
Obviously, we have a distinct competitive advantage both in the knowledge of those engines, what's going to happen ultimately in the aftermarket, and in the ability to maintain those engines. In addition, pre-COVID, air passenger miles reliably doubled about every 15 years. And the percent of engines that were leased by airlines went from about 10% in 1998 to over 50% today. So growing market, growing percent of leasing. And that has really led to the ability to do extremely well over time in that. So we have the right service advantages, right underlying market. Obviously, at the beginning, I said up till COVID, but the thing about COVID is that was the ultimate resiliency test for that industry. Air passenger traffic went to zero briefly. And the industry has fully recovered today. The last piece to recover was the wide body international traffic.
That's the majority of the engines in the GATX portfolio. And even that is back to pre-COVID levels today.
Great. Well, we've got four minutes, so I took a little bit longer in this part than I intended. But are there any questions from the audience that people would want to ask, or I can keep going? All right. So I'll ask. I think earlier you'd said last year you spent $1.6 billion. The plan is to spend something like that this year. Maybe walk through where that goes and where you think the best opportunities for capital deployment are.
Yep. So first of all, I want to thank you for blaming yourself because I think it was my long-winded answers that caused us to run out of time. As far as the investment levels that we expect to have, it really is across the board. I talked about what's going on in India. In the aircraft engine space, most of our time was investing only through the joint venture with Rolls-Royce. But starting in 2021, we started investing in engines for our own account. We're now up to 29 engines. Though, again, those engines are managed by the JV. But really, COVID, where a countercyclical investor put us in a position where we could really do some, make some investments that were going to be attractive over the long term, that has continued, and we're going to continue to move forward there.
But even in the North American space, which is as a market, slower growth than some of those, the industry's been at about 1.6 million cars for quite some time. With our very diverse fleet, there's opportunities to grow on specific car types. And in addition to our long-term supply agreements, which is how we buy most of the rail cars in our fleet, we also buy spot cars in the spot production from builders. And importantly, we buy. I mentioned those existing cars with leases attached. And there has been opportunity in 2023 and expect to continue to see that in 2024. So at the highest level, I would expect us to have opportunities in each of those somewhat akin to what you saw in 2023.
Okay. So, I have a running out of time. I have two sort of a two-part questions. First of all, one of the things that we've seen over decades now is the railroads owning less of their own cars. And really that's been made up for by leasing companies like yours. I think it's more than half of all of rail cars at this point are owned by leasing companies and growing. Where do you think that goes longer term, if you know, had to guess? And, well, we'll just stick with that one for now.
Yeah. So I would say that trend should continue. It's been a long-term trend. What you see is the amount owned by the shippers has been relatively flat. All that movement, all that growth in leasing has been at the expense of railroads. And the railroads want to invest their capital in their infrastructure. And there's no reason to believe that that should change. If anything, this kind of environment with higher interest rates, as some of those shippers make that lease versus own decision, might flip a couple to the lease side. But the long-term trend, you would expect to be very similar.
Lastly, maybe a little bit on the competitive environment for what you guys do. Again, I mentioned banks earlier. There's a few of other public competitors. How do you see that competitive environment playing out?
Yeah. I, again, I, I'd come back to that, and focus on service and deep asset knowledge. People with money will get into space. And, and what we feel very, very good about is our ability to compete regardless of someone's cost of capital because you have to remarket these assets. You have to maintain these assets. They're not a bond. So people may enter, when they inevitably decide they want to exit. We'll be there to help them do that. We've done that before and, would look for the opportunity to do it again.
All right. Well, Tom, we are out of time. This is great.