Truck OEMs say market outlook is mixed

LOUISVILLE, KY – Interviews and speeches given by the executives of the major truck manufacturers the Mid-America Trucking Show revealed that a confusing mix of general economic data and trucking trends makes it hard to figure out what the market is doing. On one hand, positive economic indicators such as the continuing boom in home construction and rising freight volumes have helped boost demand

LOUISVILLE, KY – Interviews and speeches given by the executives of the major truck manufacturers the Mid-America Trucking Show revealed that a confusing mix of general economic data and trucking trends makes it hard to figure out what the market is doing.

On one hand, positive economic indicators such as the continuing boom in home construction and rising freight volumes have helped boost demand for new trucks, especially from truckload carriers and vocational fleets.

On the other hand, tight credit, high insurance rates, and the uncertainty surrounding emission-compliant '02 engines may overwhelm any economic improvements.

"The truckload segment boosted their purchases in the first two months of this year," said Susan Alt, vp-marketing for Volvo Trucks North America. "We think that was an artificial increase, however, in response to the impending introduction of '02 compliant engines."

Alt added that there is no credit for small operators, so owner-operators are not buying. However, she noted that LTL carriers are still buying at the same level as last year.

Ed Caudill, Kenworth Truck Co.'s gm, said some positive trends include a 2-3% rise in truck tonnage this year, along with strong growth in the housing market. Data compiled by the federal government shows construction of single-family homes rose 7.4% from January to February this year, the largest increase in new home construction in 25 years.

On the flip side, Caudill noted insurance premiums have climbed anywhere from 30-100% for trucking companies and the continuing glut of used trucks on the market continues to depress vehicle residual values.

"The strong housing market in particular has boosted demand for vocational trucks," he said. "Also, continued low interest rates has made it more affordable to buy trucks."

Caudill added that low fuel prices have also been critical, since fuel represents anywhere from 25- 30% of a typical fleet's operating cost.

Nonetheless, the signs are positive enough that Caudill said Kenworth plans to boost its truck build rate by six trucks a day starting April 1. Peterbilt Motors Co. will also increase its daily build rate 20% starting in April, said gm Nick Panza.

"The trucking industry still has many challenges to face, but demand for trucks is increasing slightly," Panza said. He added that Peterbilt projects industry-wide sales of Class 8 trucks to reach 145,000 units in 2002, down from 150,000 in 2001, with Class 6 and 7 sales staying relatively flat a 90,000 to 95,000 units.

However, the low diesel fuel prices of the recent past may not continue much longer. OPEC, whose member nations control 60% of the world's oil, has managed to get non-member countries to agree to across-the-board oil production cuts. Russia, which has been long opposed to such cuts, also agreed to cut production by 150,000 barrels a day last month. That has helped push the price of a barrel of oil from $20.60 at the beginning of 2002 to $24.80 by mid-March.

"Market conditions are uncertain at best," said Freightliner COO Roger Nielsen. "Class 8 orders are ticking up but there are mitigating factors for that. While durable goods and factory orders are up, there's been a lack of demand in consumer goods and manufacturing still retains excess capacity."

Consumer prices have also risen in recent months, according to the Department of Labor, which may account for slowing demand for consumer goods. The cost of consumer goods as a whole rose 0.2% between January and February, with "core" goods such as energy and food rising 0.3%. Compared to the same period in 2001, prices overall were up 1.1%m with core consumer prices up 2.6%.

Nielsen also noted that Freightliner has seen some large fleets move their purchases forward to avoid buying trucks equipped with '02 compliant engines in October.

"That trend may increase as time goes on," he said. "But it's too early to predict. The pricing for '02 engines is still largely unknown."

Freightliner predicts that the total Class 8 market in the U.S. will shrink 10% this year to between 150,000 to 160,000 total units, with medium-duty sales volume dropping below the 140,000 units sold in 2001.

International Truck & Engine Corp. is particularly worried about fleets "pre-buying" trucks in order to avoid getting equipment powered by new '02 engines.

"The spike in demand caused by pre-buying would be a bad thing for us and our industry," said Steve Keate, president of the truck group at International. "We have locked in our production rates this year based on a total Class 8 market prediction of 140,000 to 145,000 new units sold in the U.S. and Canada."

Keate said International would not build more than its fair share, because it does not want a short-term gain at the expense of long-term production goals.

Mack Trucks president & CEO Paul Vickner added that while there might be some pre-buy of trucks this year, he believes most truck owners won't pursue that strategy.

"Some may even purchase used trucks instead of new vehicles this year to avoid new '02 engines," he said. "But they are missing a very important point: The Environmental Protection Agency's 2002 emission reduction rules are here and will be launched. They will be a fact of life.

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