Based on recent truck order data, a Bear Stearns report suggests that fleets are already ordering ’06 model trucks to avoid ’07 models that will be more expensive due to new EPA-compliant engines.
According to A.C.T. Research Company LLC data, November new Class 8 truck orders were down 25% year-over-year to 30,400. Bear Stearns said that November 2005 new orders were at the lower end of its expectations, which was between 30,000 and 32,000. November 2004 new orders were at an all-time high of 40,331.
“Increasingly, our sense is that (pre-buying of ’07 trucks has already hit), and that we’re unlikely to see a high-30k’s number again this cycle,” stated Bear Stearns.
According to Mack Trucks spokesman John Walsh, the OEM expects some pre-buy in 2006. “Barring unforeseen circumstances such as a significant downturn in the economy or a major geopolitical event, we expect the market for heavy-duty trucks to remain strong in 2006, with North American retail sales levels comparable to 2005,” Walsh told FleetOwner in an emailed statement. “We also expect to see some ‘pre-buy’ effect in 2006, and some drop off in industry totals in 2007. But it's too soon to say to what extent.”
Chris Brady, president of Commercial Motor Vehicle Consulting told FleetOwner that fleets have not yet engaged in significant pre-buying.
“I disagree with [Bear Stearns] completely in the sense that pre-buy should have begun by now,” Brady said. “If you look at the previous pre-buy [to avoid ’02 model engines], orders didn’t accelerate until late February through the beginning of March. I’m not surprised carriers have not begun massive orders with regards to the ’07 model engine. I expect carriers right now are working on their 2006 business plans and probably will wait until they see end-of-year financials to see what equipment they can afford.”
And based on normal business planning cycles, pre-buying would not begin until between February and March—just like the last pre-buy, Brady said.
Second-half 2006 production slots for OEMs have filled up rapidly, while first half slots remained wide open, Bear Stearns noted, resulting in OEM backlogs filling in ‘backwards’.
“[Production slots] are definitely going to fill in backwards because in a pre-buy you want to delay purchase of an ‘07 engine as long as possible,” Brady explained. “If you’re a fleet you want to take all the trucks in December 2006 because you don’t want to reduce economic life of the [pre-‘07] vehicles.”