With industry production rates suddenly running ahead of demand, truck makers are starting to “trim their sails” in the words of one analyst – exemplified by Kenworth Truck Co.’s decision to lay off 10% of the workforce at its main Chillicothe, OH, plant starting next week.
According to a story in the Chillicothe Gazette today, Kenworth is reducing production levels as truck orders have dropped about 10%. Chillicothe Plant Manager Scott Blue told the paper that “things will be better later on in the year, but this is a step we have to take” near-term due to what he called a “slump in global demand.”
Kenny Vieth, president and senior analyst for ACT Research Co., told Fleet OwnerKenworth’s move doesn’t come as much of a surprise as the build rate for truck production industry as a whole is running ahead of demand.
“So far this year, the volume of truck orders indicates annual demand for 290,000 to 300,000 heavy trucks, but as of February, the industry’s build rate was up around 320,000 trucks,” Vieth explained. “So there’s some pull back to be expected as OEMs align their production better with demand.”
He added that such a “trimming of sails” should occur across most of the industry but that it will only be a short term issue.
“The economy and commercial vehicle demand are both generally in line with expectations,” Vieth said. “The U.S. economy is in much better shape than it was at the start of the Great Recession, not only from the perspective of continued growth, but also in its ability to weather shocks. Industry backlogs are large, and we remain comfortable with our 2012 forecast.”
Indeed, other firms concur with ACT’s outlook for the U.S. economy. According to the Spring Outlook report from Mellon Capital Management Corp., part of BNY Mellon Asset Management, the U.S., Japan and Australia are expected to escape recession over the next 12 months, with the U.S. economy now expected to expand by 2.9% over that period.
Excluding the U.S., Japan and Australia, most developed countries are expected to experience a mild recession over the next year, with European countries at the highest risk, noted Lex Huberts, president of Mellon Capital.
“The U.S. economy is continuing to strengthen and we now put the probability of anemic U.S. growth at less than 5%,” he said. "This is a significant improvement from September, when the probability was closer to 20% that the U.S. economy would grow at less than 2% over the next year.”