Class 8, medium-duty, and trailer production rates are all expected to be knocked lower this year and next, according to analysis issued by research firm FTR during its annual transportation conference in Indianapolis this week.
However, by 2018, production rates for all of them are expected to start recovering, the firm’s experts said.
Eric Starks, FTR's president & CEO, explained that high inventory levels are contributing to the problem – reducing freight volumes and thus the need to buy trucks.
“Why do you buy a truck? To move freight,” he said. “And if you don’t have freight to move, you don’t buy a truck.”
Starks noted North American Class 8 production should end 2016 at about 230,000 units, down from 320,000 units in 2015. Class 8 production rates will then inch up to 231,000 units in 2017 before re-accelerating to 264,000 units by 2018, he said.
Starks added that the roughly 1.5% average gross domestic product (GDP) growth over the last few quarters is “just enough to keep freight stable” but that “flatness” in volumes is breeding issues as well.
"Flat is difficult; the trucking industry doesn't like flat," Starks explained. "It's used to growth or decline; events you can take action upon. With flat, you do nothing and you don't think positive thoughts, either. You are waiting for the other shoe to drop."
Don Ake, FTR's trailer expert, is projecting total U.S. trailer production to hit 277,100 units this year before falling to 246,000 units in 2017, before climbing back to 265,000 units in 2018.
Yet he stressed he may dial down his 2017 projection by 10,000 units to 236,000 units for next year due to a deeper pullback in dry van orders.
“Within the last week, I’ve found my dry van numbers are at the ‘high end’ of my [forecast] range,” Ake said. “You don’t want projections to be at the ‘high end’ so I may pull them back down towards the middle.”
He added that the trailer industry is in “completely new territory” when it comes to the new Phase 2 greenhouse gas [GHG] rules and is not sure yet how those mandates will affect order rates.
OEMs expect some “minor” price impacts due to the new rules, which could crimp sales, Ake said, but while it’s “something to watch” he’s not building anything related to that into his forecast.
“We’re looking at additional cost for trailers and that could crimp sales but we just don’t know,” he stressed. “We have no historical trends to look at.”
What’s more important, Ake pointed out, is what happens to freight volumes – especially if the ongoing “inventory correction” that some blame for sluggish economic activity dissipates by year’s end.
“If the [freight market] is up next year and there’s money to buy trailers ahead of the GHG mandates, there may be a pre-buy,” he noted. “That could add 16,000 to 20,000 units to the forecast. But the money has to be there to do it. If freight is weak, then I would not expect to see a pre-buy.”
Where medium-duty trucks are concerned, a “slow yet steady” growth pattern is expected for the next several years, with production dipping slightly next year but swinging back upward in 2018 and 2019.
Jonathan Starks, COO at research firm FTR, noted at his company’s annual conference back in mid-September that overall North American production of medium-duty trucks are expected reach 210,500 units this year, up from 188,100 units in 2015, then fall to 201,800 units in 2017 before climbing back up to 206,000 units in 2018 and 209,900 units in 2019.
Within that medium-duty group, Starks said production of Class 4-5 trucks is expected to reach 70,600 units this year, up from 55,800 units in 2015, then dip down to 67,200 units in 2017 before climbing to 68,300 units in 2018 and then to 70,400 units by 2019.
Production of Class 6-7 trucks – which represents the bulk of the medium-duty market – is expected to follow the same path, Starks notes: rising to 139,900 units in 2016, which is up from 132,300 units last year, then drop down to 134,600 units in 2017 before climbing back to 137,700 units in 2018 and 139,300 units in 2019.
“The medium-duty outlook is for continued slow and steady growth,” added Steve Latin-Kasper, market data and research director for the National Truck Equipment Association (NTEA).
“No one is predicting a recession for 2017 or 2018,” he said. “We should also maintain 2% GDP [gross domestic product] growth this year and into next year, but that really comes down to whether Millennials open their wallets.”
If they do “open their wallets,” Latin-Kasper said GDP could accelerate to 3% in 2017, which could spur demand for more trucks. “If they don’t, it will be more of the same ‘slow growth’ we’ve experienced so far in this economy,” he pointed out.
In terms of medium-duty truck trends, Latin-Kasper noted that the “fleet buying cycle” as a whole has been shifting from Class 4 and Class 6 trucks to more Class 5 and Class 3 units, with a lot of growth in the commercial van segment occurring, especially for high-roof vans.