Production Hampers Truck Sales

OEMs across the board are reporting strong earnings due to brisk unit sales, but high steel prices and tight capacity are creating a revenue ceiling that are looking to dog profits throughout the remainder of ’04.

Navistar International Corp. posted third quarter earnings of $56 million, as strong heavy truck sales more than overcame increased costs with meeting 2004 emissions requirements, high steel prices and component shortages brought about by suppliers being slow to ramp up production to meet the brisk market demand.

“Our ability to mitigate the impact of current economic challenges, principally the impact of the current steel situation and the fact that all truck manufacturers now are on allocation of 15-liter engines from Caterpillar and Cummins, will dictate how high earnings will rise this fiscal year,” said Daniel Ustian, chairman, president and CEO of International truck & Engine Corp..

The Wall Street Journal Online reported that Ustian said any shortage wouldn’t affect the company’s production lines until much later in the fourth quarter, if at all.

DaimlerChrysler’s commercial vehicle division also stated that it has not been able to produce at a rate that keeps up with market demand. “The increase for heavy-duty trucks was even higher in a rapidly expanding market, but we did not quite hold our market share due to bottlenecks in production capacity,” stated the company’s earnings report.

Leif Johansson, president & CEO of the Volvo Group, whose holdings include Volvo Trucks, Mack Trucks and Renault Trucks, also commented that its inability to produce at a rate that meets demand is a symptom of success. “As a result of the strong increase in sales and favorable order bookings, capacity utilization in the Group’s production plants is high,” Johansson said. “Some units, as well as some suppliers, are approaching the capacity ceiling. However, we expect to be able to continue eliminating bottlenecks during the upturn without major investments.

’04 Still Set for Banner Sales Year

International's Ustian noted in the company’s third fiscal quarter report that retail deliveries of heavy trucks for the first nine months of 2004 are up 48% over a year ago and that market demand continues to be strong.

He said the company has raised its industry forecast slightly for the year from 328,500 units to 330,000 units, reflecting a decrease of 1,500 school buses and an increase in heavy trucks of 3,000 units to 211,000 units.

W. Marvin Rush, chairman and CEO of regional Peterbilt dealership conglomerate Rush Enterprises, also believes truck sales should remain strong, but well beyond just 2004.

“Our prediction of strong demand for both heavy and medium-duty trucks has proven to be accurate … and manufacturer and component suppliers expect demand for trucks to continue to increase through at least 2006,” he said.

Rush said the company’s truck sales operation delivered 1,283 new heavy-duty trucks, 433 medium-duty trucks and 647 used trucks during the second quarter of 2004, compared to 755 new heavy-duty trucks, 211 medium-duty trucks and 588 used trucks for the same period in 2003. As a result, truck sales revenues almost doubled from last year, rising to $253.3 million in the second quarter, compared to $179.3 million in the same period in 2003, he said.

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