Sluggish Class 8 sales predicted until 2011

Despite rosy projections offered by OEMs at the Mid America Trucking Show last week, analysts expect Class 8 sales to remain relatively flat this year – with a bigger spike occurring in 2011. But even that jump will only gets sales back to what are considered “nominal” levels.

Research firm FTR Associates forecasts demand for Class 8 vehicles this year will only increase 3% over 2009, followed by a considerably more significant improvement of over 50% in 2011. Yet Eric Starks, FTR’s president, cautioned that the big increase projected for Class 8 sales next year doesn’t necessarily represent expectations of boom times for truckers. (Read about trucking's economic recovery)

“Don’t read too much into that sales increase for 2011, because that only gets us back to the normal replacement vehicle level,” he told FleetOwner, meaning those higher sales will be geared toward replacing older trucks, not adding capacity. “On a historical basis, we’ll still be at very low levels.”

FTR’s forecast noted that, although the overall economic environment is improving, there are still negative conditions such as soft consumer spending and weak housing demand indicative of a slow recovery. New truck demand will be further hindered by the continuing large overhang in underutilized and idle trucks as well as the new emission control technology mandated by the Environmental Protection Agency (EPA).

“Our forecast from February 2009 – 13 turbulent months ago – is being confirmed by current market conditions and remains unchanged,” Starks said. “Everyone in the industry would have been glad to see improvement in demand before now, but our forecast models showed us that wasn't likely until 2011.”

Still, there are signs that things should be better over the back half of 2010, he added, as an uptick in economic activity coupled with tight capacity could result in stronger sales.

“The freight market continues to improve and fleets should get better rates by year’s end as capacity exits the market,” Starks said. “With more cash on hand, fleets will be able to buy new trucks to replace older units.”

Broader analysis seems to confirm this brightening economic picture. According to the National Association of Credit Management (NACM), sales in both the manufacturing and service sectors jumped in March at a pace not seen in over a year – nearly five points faster than any increase since early 2008.

“The pace of growth in the overall economy has been uneven thus far, but is about what was expected from most analysts,” said Chris Kuehl, NACM chief economist. “But the fact that consumers added 0.3% to their activity despite some of the worst weather this winter appears to indicate some significant pent-up demand.”

One of the biggest changes came in the manufacturing arena in terms of sales levels, he said. The firm’s Credit Managers’ Index (CMI) jumped from a 62.5 reading in February to 66.9 in March. This suggests that the momentum created during the inventory buildup has continued to some extent, but at a slower pace than seen in the last quarter of 2009.

Averaged together, both service and manufacturing sector CMI indicators are now hovering around 55 and while this is not stunning in terms of growth prospects, it is a far cry from where the numbers stood a year ago, Kuehl said.

“The first three months of 2010 were essentially flat after a pretty impressive jump in the last part of 2009,” he noted. “The fear was that the gains made in the fourth quarter of 2009 would be eroded in 2010, but thus far the gains have held with slight improvements. Going forward, there will be less and less distance between the readings of 2009 and 2010 as this is the point that the first, very faint signs of recovery began to appear.”