Truck sales hit the floor

Retail sales for heavy-duty trucks plunged 38% to 16,090 in March compared to the 25,895 sold in the same month last year, according to WardsAuto.com

Retail sales for heavy-duty trucks plunged 38% to 16,090 in March compared to the 25,895 sold in the same month last year, according to WardsAuto.com.

In the first quarter, sales amounted to 51,116 units, a 22% drop from 65,523 in Q1 2006.

Eaton Corp., which has a large truck component business, said NAFTA heavy-duty truck production in the first quarter was down 23% compared to Q1 2006. Production is a measure of the number of units built at the factory, and precedes retail sales. The company said these results reflect a “better than expected” operating environment.

“We should continue to expect a significant falloff in production in the second quarter, to about 45,000 units,” stated Alexander Cutler, Eaton chairman & CEO. “We now estimate the NAFTA heavy-duty truck market in 2007 will total between 215,000 and 220,000 units.”

This is a more bullish outlook than Eaton’s earlier prediction that NAFTA production will fall between 205,000 and 210,000 units in 2007. By comparison, Eaton said 378,000 trucks were produced in 2006.

Truck dealers bulked up on inventories of trucks with ’06 engines, as evidenced by an 11% year-over-year boost in stocks to 54,222 last month, according to WardsAuto.com. In 2006 there was a surge in production, because 2006 engines were the last models not required to meet EPA emission standards, which calls for more expensive and complicated components.

As a result, the industry-wide consensus has been that truck production in 2007 will shrink 40% from 2006. Additionally, a softer freight environment in 2007 has further dampened sales.

Analyst Chris Brady of Commercial Motor Vehicle Consulting (CMVC) said that the sharp year-over-year retail sales drop in March indicate that the final trucks with ’06 engines have been delivered. Diesel engines that don’t meet the EPA 2007 standards were built as late as December, which means fleet deliveries of trucks with ’06 engines-- and by extension sales-- were completed as late as March, Brady explained.

But as steep as the drops in retail sales and production were, they paled compared to the 76% dive Class 8 new orders took to 12,700 units in March over the same month last year, according to A.C.T. Research. New orders are a bellwether for production and retail sales. As a result, the weak orders in March will translate into softer production and retail sales.

Additionally, bloated dealer inventories stagnated in March at 54,222 units compared with 54,703 in February. Dealers will hold off ordering new trucks as a result, Brady explained.

“On the production side, to OEMs the [high] inventories in March is really troublesome,” Brady said. “They are not going to get any orders from the dealers because they have a lot of trucks on their lots. For OEMs there’s going to be a decline in sales in the second quarter and on top of that you’ll see production levels below retail sales.”

Brady expects that there could be a rebound in new orders in the third quarter once the freight environment starts to firm up.

To comment on this article, write to Terrence Nguyen at [email protected].

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