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Pent-up demand driving new-truck sales

Sept. 23, 2011
With an economy stubbornly stuck in slow-growth mode and motor carriers constrained from adding equipment by the return of the driver shortage, it is pent-up vehicle replacement demand that is causing medium- and heavy-duty trucks sales in the U.S. to continue galloping ahead

With an economy stubbornly stuck in slow-growth mode and motor carriers constrained from adding equipment by the return of the driver shortage, it is pent-up vehicle replacement demand that is causing medium- and heavy-duty trucks sales in the U.S. to continue galloping ahead.

As of August, according to the latest data released by WardsAuto, the pace for U.S. sales of Class 4-8 trucks was running 54.2% ahead of last year. Last month, Class 4-8 OEMs sold 27,649 units—up from 17,238 units sold in the same period a year ago on a daily-selling rate basis. Sales also mounted in July by 31.2% and in June by 37.8%.

All told, through August, medium- and heavy-duty truck sales totaled 189,840, which is 35.6% higher than the year-ago total of 139,996.

“Every weight class posted increases in August,” WardsAuto reported, “led by Class 8’s 64.2% jump in deliveries from like-2010’s 8,834.” What’s more, the “performance by Class 8 sellers in August trimmed the segments inventories to a 51 days’ supply compared with prior year’s 56.”

Moving to medium-duty segments, August sales hikes from a year ago see Class 4 up a whopping 76.2% to 962 units from 525; Class 5 up 16.9% to 3,313 from 2,726; Class 6 up more than double to 4,494 from 2,122; and Class 7 up 20.4% to 3,795 from 3,031.

Also according to WardsAuto, inventories of Class 4-7 trucks “stood at 31,007 units at month’s end, up from 22,253 in the same period last year. But days’ supply slipped to 64 from 66.”

Why then, with all the negative economic news and all the handwringing evident again about finding and keeping drivers, have new-truck sales kept up such a ferocious pace this year?

“The short answer is ongoing replacement demand,” Denny Slagle, president & CEO of Mack Trucks, Inc. and Volvo Trucks in North America, told Fleet Owner. “With the onset of the great recession, customers held on to equipment much longer than usual.

“As manufacturing picked up, and there was freight to move again, highway truck sales rose, primarily to support existing rather than additional business,” Slagle added. “With the age of the existing fleet still quite old by historical standards, it’s reasonable to assume we’re not at the end of the replacement cycle. The construction market, on the other hand, remains very weak. “

Industry analyst Chris Brady, president of Commercial Motor Vehicle Consultants (CMVC), concurs with Slagle that replacement demand remains the key driver of truck sales right now.

“We are not in a recession,” Brady told Fleet Owner,” adding for emphasis that “it is not 2008 or 2009.”

What’s been happening since last year with new-truck sales, Brady explains, is that “replacement truck demand picked up coming out of the recession, after many fleets extended their trade cycles. The economic recovery began in the second half of ’09, bringing a rebound in business profits, which in turn enabled companies to start making capital expenditures for new trucks—as they knew they could not keep holding onto them [aging trucks] much longer.

“So,” he continues, “what’s driving these sales is pent-up demand coupled with a return to normal replacement cycles” for most fleets. “But there is no pressure on fleets to add capacity because this is not a normal recovery.” By that he means businesses may have seen profits rise, but “household balance sheets are weak” and therefore freight growth is being constrained.

Presenting a different take is David Hames, gm-- marketing & strategy for Daimler Trucks North America.

“We were pleased to see the U.S. Class 8 market reach a year-to-date peak in August,” he told FleetOwner. “Industry results continue to be in line with our expectations [158,000 total truck sales for 2011]. We see our strong market performance as customer endorsement of our proven EPA 2010 solution and our continuing focus on low cost of ownership. We believe the demand for trucks is experiencing strength, in spite of poor economic indicators, due to continued strength in US manufacturing.”

CMVC’s Brady adds that truck orders—not sales—are a “leading indicator of future activity and they have flattened out. And we’ll see trucks sales flatten next.” He sees keep an eye out for that happening as soon as within the next several months.

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