Preliminary North American Class 8 net orders in December of last year remained in line with analyst expectations – which means they stayed strong, well above 2016 levels, which leads them to believe 2018 will be a good year for heavy truck production volumes.
“The fall order season closed out strongly in 2017, as December Class 8 truck orders of 37,500 units were up 75% year-over-year and the highest monthly order total in three years,” noted Michael Baudendistel, vice president of the transportation & logistics research group at Stifel Capital Markets.
“We continue to believe there is more upside than downside to our 2018 Class 8 production estimate of 305,000 units,” he added. “We believe, as well, that 2018 will not represent the 'peak' this cycle … as we believe 2019 will be stronger yet, supported by increasing replacement demand, improving freight fundamentals – especially pricing – and the cash benefit to fleets and other truck buyers of lower corporate tax rates and increased bonus depreciation.”
Baudendistel expanded on the forecast in more detail by pointing to three reasons why 2019 Class 8 volumes “should be stronger yet” compared to 2017 and 2018: increasing replacement demand, with a large population of trucks retailed in 2014-2015 coming back in on a 4- to 5-year trade cycle; improving freight fundamentals, with volumes growing and rates expected to be up significantly in 2018; and the added benefit of lower corporate taxes and increased bonus depreciation, which should meaningfully improve cash flow for fleets, especially those in the TL segment.
Jonathan Starks, COO at FTR Transportation Intelligence, noted that his firm’s preliminary Class 8 order data of 37,177 for December was “above our baseline figure” and right in line with its expectations.
“This is the third consecutive month that Class 8 orders have surpassed 30,000 units and is the highest level since the 40,000-plus orders that were seen in the fourth quarter of 2014,” he added.
“Distribution of the orders continues to be inconsistent across the OEMs, but no OEM is showing weakness in order activity,” Starks said. “The North American equipment market continues to show strength as we begin 2018 [with] North American Class 8 orders for the past twelve months now totaling 290,000 units.”
On the medium-duty side of the ledger, Kenny Vieth, president and senior analyst for ACT Research, noted that North American Class 5-7 orders were “steady” in December, although mixed.
“Preliminary data indicate that Class 5-7 net orders inched higher from November to 21,300 units,” he explained in a statement. “However, on a year-over-year basis, orders dropped 3.7%. For all of 2017, North American Class 5-7 orders totaled 249,700 units.”
While Stifel’s Baudendistel noted that Class 5-7 net orders were down 4% year-over-year, they were up 5% month-over-month and – following a 16% year-over-year increase in medium-duty orders last November – that “December dip” is “not much to worry about and we continue to expect medium duty production to be up in the low- to mid-single digits in 2018.”
Stifel’s medium-duty industry production estimate for 2018 remains at 257,000 units, he added, which is up 4% versus the expected final production numbers for 2017.