Class 8 truck manufacturers and dealerships are rolling out their strategies in anticipation of a major falloff in truck sales next year due to the higher cost for trucks equipped with mandated emission controls. OEMs are announcing plans to slash their manufacturing workforce when ‘07-model production hits full stride. Meanwhile, dealers are building their inventory of ’06 models to hedge against slow ’07-model sales.
Paul Vikner, president & CEO of Mack Trucks Inc., a member of the Volvo Group, today announced plans to reduce employment over the next six months by about 450 positions at its Macungie, PA, truck assembly plant.
Vikner said reductions at Mack’s Macungie plant, which currently employs about 1,040 people, will take effect before the end of this year. Additional cuts are expected in the first half of 2007.
“We very much regret the impact this action will have on our employees, their families, and our local community,” said Vikner. “But these reductions are essential to the responsible management of our business through the downturn.”
In October Freightliner LLC CEO Chris Patterson told The Oregonian that it is likely to lay off manufacturing workers at all of its north American plants.
In August Navistar International Corp. announced the potential for layoffs at its Chatham, Ontario heavy truck assembly plant by late 2006. The OEM provided a 16-week advance notice to comply with Ontario’s labor laws.
This is consistent with an industry-wide trend for Class 8 truck dealers. WardsAuto.com reported that in September, inventories inflated by 17% to 52,675 units compared to September 2005 while retail sales increased only 8.4%.
Jim Meil, chief economist for Eaton Corp., said that 2006 has been a stronger production and sales year than anticipated. Fleets “pre-buying” 2006 model trucks to avoid the 2007 models is expected to amount to 50,000 to 60,000 in North American Class 8 retail sales. Eaton expects between 360,000 and 365,000 units will be produced in 2006. In 2007 that number is expected to drop about 40% to 208,000.
“As long as there is 2006 product, that will sell,” Meil told FleetOwner. “The question is, will 2007 product move if there are question marks on [2007] truck freight?” If there is a downturn in freight volumes in 2007, from Eaton’s production standpoint, “the higher high could lead to lower lows,” Meil said.
On the dealership side, Rush Enterprises said Wednesday that it is fattening up inventories in anticipation of a hibernation of ’07-model sales at the start of next year.
“We know there will be a sharp decline in the Class 8 truck market next year…[so] we began increasing our new Class 8 truck inventory during the third quarter of 2006, and expect to continue to increase it through the remainder of the year,” said Rusty Rush, president & CEO of Rush Enterprises.
“We expect first-quarter [2007] deliveries to remain robust followed by weaker deliveries in the second and third quarters,” said Marvin Rush, chairman of Rush Enterprises. “However, we believe the market will begin to rebound in the fourth quarter of 2007, followed by strong markets in 2008 and 2009 as customers purchase trucks in advance of even more stringent diesel engine emissions standards that will go into effect in 2010.
“A large inventory of Class 8 trucks with engines manufactured before the new emission guidelines take effect should lead to a strong start in 2007,” Rush added. “[By] properly managing Class 8 inventory levels heading into 2007, we hope to soften the earnings impact that will result from fewer Class 8 trucks being sold in 2007.”
According to analyst Chris Brady, president of Commercial Motor Vehicle Consulting, in spite of the market disruption OEMs and dealers are executing plans that had been prepared well in advance.
“OEMs may have an even more pessimistic outlook for planning purposes. The industry expected a steep downturn—it’s just a matter of how steep. They key to how steep it falls off is the economy [in 2007]. If freight volumes fall, it would just exacerbate the downturn.”
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About the Author
Sean Kilcarr
Editor in Chief
Sean Kilcarr is a former longtime FleetOwner senior editor who wrote for the publication from 2000 to 2018. He served as editor-in-chief from 2017 to 2018.