Truck Orders Returning to Earth, but Not Crash Landing

Falling North American class 8 truck orders is a sign that the sales market is returning to normal levels, rather than an impending major recession in the freight economy, according to Eric Starks, CEO of FTR.

AS reported by Truck News, Starks explained that while manufacturing is flat, the data doesn’t reflect a recessionary environment, but rather a correction. FTR’s tracking of monthly freight loadings has flattened out, but there’s no downward spiral that should spark concern, Starks noted.

“The market continues to be relatively healthy,” he said. “We are seeing a normalization within the market.”

The spot market has seen rate declines, but remains relatively healthy, and above the five-year average, Starks pointed out. FTR is projecting freight growth of 1% to 1.5% through the balance of this year and next.

Don Ake, vice-president of commercial vehicles for FTR, reiterated that the Class 8 truck market is coming off some tremendous years; four of the top seven production years ever have occurred within the past six years. The Class 8 production rate this year is forecast to reach 353,000 units, compared to 323,500 last year. The all-time record was 2006, when 371,000 trucks were built, aided by the EPA07 emissions pre-buy.

But there’s no hiding the fact Class 8 orders have plunged since the highs set in the fourth quarter of 2018.

“If looked at in a vacuum, you’d think things are horrible,” Ake admitted. However, he noted if the 2018 and 2019 monthly order numbers were to be averaged out, they’d still come in above the seven-year average.

“The market is trying to get back to normal,” said Ake. And he’s also encouraged by the fact there’s been no spike in cancellations. “I thought once we got into mid this year, we would see cancellations spike. What we saw was cancellations increase, but not spike. (Customers) are taking most of these trucks, which is a very good sign for the market. It’s a normalization of the market, not a crash of the market.”

Class 8 retail sales and build rates also remain strong, but Ake said most OEMs have announced build rate slowdowns. Backlogs are being drawn down, but remain at historically high levels. Ake said October will be an important month for orders. It’s reasonable to expect 20,000 Class 8 orders a month in the coming months, Starks said. Truck inventories are high, meaning retail sales will need to pick up to prevent unhealthy inventories for dealers.

FTR’s forecast for 2020 heavy truck sales in the US, Canada and Mexico are 260,000 units in 2020, 255,000 units in 2021, and 245,000 units in 2022. However, Ake admitted it’s a “slightly optimistic” forecast. “We don’t see the market crashing, as long as GDP stays up,” he said.

Starks added 245,000 units is about equal to replacement demand.

Full story here.

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