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Trucking’s suppliers still see slow recovery

Aug. 3, 2009
Engine, tire, and truck manufacturers alike don’t see any significant economy recovery occurring until next year, with truck sales remaining flat for the balance of 2009 and only a mild uptick predicted for 2010

Engine, tire, and truck manufacturers alike don’t see any significant economy recovery occurring until next year, with truck sales remaining flat for the balance of 2009 and only a mild uptick predicted for 2010.

“The economic climate continues to be extremely challenging, and we are managing our business under the assumption that we won’t see any recovery in our markets in 2009,” noted Tim Solso, chairman and CEO of Cummins Inc., in the company’s second quarter earnings report.

While Cummins reported its sales declined 37% to $2.43 billion compared to the second quarter of 2008, an almost fivefold drop in profitability proved the biggest surprise, with net income falling to $56 million in the second quarter of 2009, compared to $293 million in the same period last year.

The decline in profitability was primarily due to the sharply lower volumes, Cummins said, with its engine and components segments continuing to see the most severe reductions in demand, and with sales declining sharply in nearly every geographic market due to the global recession. The company said heavy-duty engine sales dropped 41% and medium-duty fell 43%, while demand in the light-duty/RV engine segment declined 54%.

Overall, Cummins said engine sales totaled $1.31 billion in the second quarter – down 45% from the same period last year – with this division posting a $4 million loss.

“The recession continues to affect our business in North America and Europe as truck markets remain weak,” noted Mark Pigott, chairman and CEO of global truck maker Paccar Inc., in the company’s second quarter statement.

Paccar – which owns Kenworth, Peterbilt, and DAF of Europe – posted an operated loss of $36.5 million on net revenues of $1.85 billion in the second quarter, compared to $313.5 million in profits on $4.11 billion in revenues during the same period in 2008. However, a one-time pretax gain of $47.7 million, due to the discontinuance of certain post-retirement health care plan subsidiaries allowed Paccar to offset its losses and post $26.5 million in earnings for the second quarter of 2009.

“Second quarter 2009 financial results were negatively impacted by lower gross margins, temporary plant shutdowns and reduced build rates,” Pigott said. “The challenging market conditions are continuing as we enter the second half of 2009.”

As a result, Paccar is lowering its forecast for truck sales in North America for this year. Class 8 industry retail sales in the U.S. and Canada are expected to be in the range of 100,000-110,000 vehicles in 2009, according to the company, reflecting continued economic weakness – specifically in lower housing starts and auto production – with retail sales in 2010 expected to improve only slightly and range between 110,000-140,000 units, according to Dan Sobic, Paccar’s executive vp.

"There is little debate as to the severity of the economic and industry downturn we have experienced the past three quarters," said Robert J. Keegan, chairman and CEO of Goodyear Tire & Rubber Co. in its second quarter earnings statement. "We are beginning to see some signs of economic stabilization and recovery, although still fragile at this stage and varied around the globe.”

Goodyear’s second quarter sales dropped 25% to $3.9 billion compared to the same period in 2008, reflecting the impact of a 17% decline in tire unit volume. That decline included a “significant” volume drop in commercial truck tire units, which have a higher revenue per tire than consumer tires, according to the company. As a result, Goodyear lost $221 million in the second quarter this year, compared to net income of $75 million in the same quarter in 2008.

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