MIAMI – The truck manufacturing industry got a wake-up call this year as Class 8 production dropped 55% in just nine months. Alexander “Sandy” Cutler, chairman and CEO of Eaton Corp., believes the industry’s manufacturers and suppliers need to make some serious changes to the way they do business to avoid history repeating itself.
“That 55% drop is huge – we’ve never had this kind of rapid drop in the last 18 years,” Cutler said at the Truck Renting and Leasing Association’s annual convention. “Usually it takes three years for a drop in the truck production cycle to occur, not eight to nine months like this one.”
Yet Cutler believes that underlying demand for trucks in North America is about 300,000 units a year, even as the current new truck build rate hovers around 145,000 units. He said this trend is because over the last 20 years – except for the three-year period when the industry was deregulated – demand for trucking services grew between 3.25% to 4% a year, largely a result of declining inventories.
Cutler also believes the industry could see a rebound as soon as the end of 2001 because the sales rate for trucks is now far below the replacement rate and diesel fuel prices have fallen 20% since last October.
Also, as the trucking industry is the first to feel the effects of an economic downturn, it is also the first to recover. Cutler said the industry has been in a “virtual recession” for seven months now, so it is well on its way to reaching the point where the cycle turns upward again.
“There is light at the end of the tunnel,” he said.
However, he added that he is not “Pollyannaish” about the industry’s situation and said truck makers and suppliers must be hard-fisted with their dollars in the short term, looking for cost savings at all levels of their operations. He added that this downturn also amounts to a wake-up call for new strategies.
“It is hard for our industry to change, but we must,” he said. “We had record demand for trucks in 2000, yet our returns were lower than five years before that. And that’s a clear sign that we need to change our business model.”