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Truck, equipment costs still set to rise

Truck, equipment costs still set to rise

Truck, equipment costs still set to rise

Rising material costs, component shortages and lengthy backlogs are prompting OEMs and equipment makers to slap fleet operators with premiums on vehicles such as trailers and heavy trucks. Trailers and heavy truck prices rose 7.3% and 3.2% in March 2005 compared to March 2004, respectively according to the Bureau of Labor Statistics (BLS). The price of tires, tubes and treads increased 4.4% year-over-year (YOY) in March, BLS said.

And with new orders of trucks accelerating, buyers should not expect any rollback in prices anytime soon.

“First quarter production of NAFTA heavy-duty trucks totaled 82,000 units, 5% more than in the fourth quarter of 2004,” noted Alexander Cutler, Eaton Corp. chairman & CEO. “Orders for NAFTA heavy-duty trucks during the first quarter averaged 30,000 units per month and the backlog at the end of March is estimated at 190,000 units. We estimate the NAFTA heavy-duty truck market in 2005 is likely to total at least 310,000 units.”

Eaton Corp. has enjoyed tremendous success, after posting a 79% YOY operating profit in its truck segment. This could be attributed to its dominance in the transmission market, Chris Brady, president of Commercial Vehicle Consulting, said.

“Eaton dominates the transmission business. And since they’re such a huge player it gives them a lot of pricing power,” Brady told Fleet Owner.

Goodyear North American Tire recently announced its plan to increase the price of Goodyear, Dunlop and Kelly commercial tires by up to 6%, effective May 15 as a result of higher material and energy costs, as well as transportation fees.

Despite a robust heavy-truck market not all companies with holdings in that industry are reaping rewards.

For example, Dana Corp. reported a 72% drop in first quarter earnings to $18 million compared with $65 million in 1Q 2004. This crimp on earnings came despite a 1Q increase in revenues to $2.5 billion compared with $2.3 billion during the same period last year.

“The single greatest factor impacting our earnings was roughly $32 million in additional steel costs that we incurred compared to the first quarter of 2004,” said Dana chairman & CEO Mike Burns. “In addition, this year’s results were affected by a component shortage from a principal supplier. The component shortage also affected the operating efficiency in our Heavy Vehicle group and led to significantly higher levels of inventory on other related components.”

Suppliers such as Dana, which is heavily vested in the weaker automotive market as well as extremely competitive axle products, will suffer through the challenges of material costs and component shortages more than players such as Eaton, CMVC’s Brady said.

“Ultimately suppliers are facing such high material costs that there will continue to be price increases. The question is whether or not they could raise prices to offset material costs,” Brady said. “All the parts suppliers are facing higher material costs, such as with tires and steel products. And even though demand and revenues are growing, especially in the heavy truck market, you’re not getting that steep increase in profitability because material costs are squeezing their margins.”

TAGS: Operations
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