North American commercial truck makers have encountered an even steeper slide in orders than expected, as a weakening US economy compounds an anticipated slump following the introduction of tighter exhaust emission regulations.
According to ACT Research, orders for Class 8 heavy trucks were 72 per cent lower in January-March than a year earlier.
A UBS survey of 122 truck operators in the US and Canada concludes that business conditions are the weakest since the survey began two years ago. For the first time, more truckers reported year-on-year freight rate declines than increases.
Truckers said they were finding it especially difficult to fill their vehicles on return trips. “Lower freight volumes have created downward pricing pressure,” one respondent told UBS. Another said that “small carriers are closing their doors left and right”.
The American Trucking Association’s seasonally-adjusted tonnage index has fallen for eight consecutive months on a year-on-year basis. It dropped by 1.7 per cent in February. Truck cargo volumes are widely regarded as among the most reliable indicators of overall economic conditions.
“We don’t think there’s anything that’s going to stimulate orders before September,” Kenny Vieth, a partner at ACT, told a conference call on Wednesday organised by Bear Stearns.
Truck operators rushed to buy vehicles in 2005 and 2006 in anticipation of the new emission rules, which took effect in January. As a result, truck fleets are at their youngest in 15 years.
Mr Vieth estimated that North American truck manufacturers will build only about half as many vehicles in coming months as in the second half of last year.
He added that an improvement in 2008 depended heavily on an economic rebound in the second half of this year. “We’ve got about twice as much inventory as the industry really needs,” Mr Vieth said.
Truck makers have already slashed output. Freightliner, a DaimlerChrysler subsidiary, has said that it expects to lay off as many as 4,000 workers. Navistar is currently turning out 50 trucks a day at its plant in Chatham, Ontario, down from 200 in May 2006.
According to Mr Vieth, downtime at assembly plants during April will be measured in weeks, rather than days.
Navistar said that it was sticking to its earlier forecast of a 28-30 per cent drop in sales this year. “We expect a general pick-up with much more in the third and fourth quarters,” it said, citing the introduction of the company’s first new big truck in 20 years, as well as its first heavy-bore engine.
One bright spot is export demand. Mr Vieth said exports were likely almost to double this year.
The weakening dollar meant that “US manufacturers have about a 40 per cent price advantage over their European counterparts” compared to five to six years ago, Mr Vieth said. Sales in Mexico and Australia have been bolstered by the prospect of new clean-air regulations there.