Truck sales await freight lift

May 18, 2007
U.S. Class 8 truck sales in April dropped 45% to 13,373 units compared with the same month last year, according to WardsAuto.com

U.S. Class 8 truck sales in April dropped 45% to 13,373 units compared with the same month last year, according to WardsAuto.com. New orders took a bigger hit, topping off at 10,491 units in April, which was down 65% compared to April 2006, according to A.C.T. Research.

In spite of the 45% drop in truck sales, dealers in April are keeping a larger inventory of trucks than they had last year. Class 8 truck inventories rose 1% to 49,342. This was because dealers snatched up as many trucks with ’06 engines as possible, in anticipation of weaker demand for ’07 engines, which are required by law to be equipped with more expensive emissions reduction technology.

Although dealers intended to bulk up on trucks with ’06 engines, it seems these units aren’t moving off the lots as quickly as anticipated, said analyst Chris Brady, president of Commercial Motor Vehicle Consulting (CMVC).

Brady said April sales amount to a seasonally adjusted annual rate 148,973 units, much lower than the 284,008 sold in 2006. The current weakness in the freight environment is driven by two factors: trucking companies bought more ’06-model trucks than they needed to avoid buying the more expensive ’07 models--which caused an oversupply of trucks to freight—and shipper demand dropped because unexpectedly bloated inventories reduced the need for linehaul services.

For more about the inventory correction, read Freight rebound uncertain in 2Q.

“Six months ago [they] didn’t expect an inventory correction to occur the same time you had the pre-buy, and it softened freight conditions,” Brady told FleetOwner.

Jim Meil, economist for Eaton Corp., described the downturn as a market shift away from the highly sought-after ’06 models.

“With the sales strong last year, there’s a transitional period with the truck buyers waiting for someone else to make the first move,” Meil told FleetOwner.

The speed of the retail truck sales recovery will depend on how quickly the freight environment bounces back. Currently, trucking companies are trying to bring their utilization rates back up, given the glut of ’06 trucks in fleets.

“A clear turnaround of truck freight would be a bolstering [factor for truck sales],” Meil said. “Also, everybody is worried about energy costs and is concerned these [‘07] engines are said to be less fuel efficient. The risk of high energy costs has to be a factor.”

“There’s a clear trend of recovery in freight volumes,” CMVC’s Brady said. “You’ll start to see signs in the third quarter. The trough in sales is going to be in the second quarter. The recovery [after the second quarter] will be gradual as dealer inventories decrease and fleet excess capacity is slowly absorbed.”

To comment on this article, write to Terrence Nguyen at [email protected].

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