DETROIT – Just like the finicky economy, opinions differ regarding the recent revival of medium- and heavy-duty trucks sales, which have been depressed for nearly two years.
Some think it’s a legitimate rebound while others cast the deliveries as pull-forward purchases by fleets trying to minimize the impact of more costly engines being introduced on Oct. 1 that will emit less smog-causing nitrogen oxides.
Neither analysts nor two of the industry’s biggest manufacturers – International Truck and Engine Corp. andInc – can agree. But nobody is complaining after declines of 24.2% in 2001 and 11.4% in 2000 vs. previous year totals.
Four months into 2002, sales are running 18.0% behind like-2001. But the sales decreases in 2002 have gotten progressively smaller, compared with previous month declines. Deliveries in April were down 6.2% vs. year-ago That’s the smallest monthly falloff since June 2000, which is the last month sales were up compared with previous-year results, Ward's data shows.
So was April an aberration? The debate is on.
International Truck Group President Steve Keate believes the industry is rebounding. While acknowledging some of the additional demand is from customers looking to take delivery before the new engine changeover, "I think that’s the minority," Keate says. "The feedback I'm getting in my discussions with customers and dealers is that a level of optimism has developed over the last 60 days which is significantly higher than we've seen in the last 18 months."
Orders for new International Class 8 trucks have doubled in the last couple of months. Keate tells the media in a recent teleconference that International booked some 4,000 orders for heavy-duty Class 8 trucks in March and again in April. During the previous 12 months, orders averaged close to 2,000 a month. Orders for medium-duty Class 6 and 7 trucks picked up some, to about 2,800 units in April compared to an average 2,400 over the last six months.
Customers have put off buying new trucks for quite a while, Keate notes, and dealers who depleted inventories during the downturn are restocking to be ready when the market comes back.
Raj Kothari, an analyst at Accelero Capital Partners, agrees with Keate. "People have been holding off on buying trucks for a while. For the last two years, there’s been no trucking market. You can only do that for so long. Eventually, you’re going to be stuck and you’re going to have to say, ‘I’m going to buy one truck. I would’ve normally bought three, but I’m just going to buy one.’ And that’s a boost from what they were doing a year ago."
Others see the recent sales trend differently.
"Industry truck orders in North America have increased in the last couple months compared to the fourth quarter 2001," says Mark C. Pigott,Inc. chairman and CEO. "It appears that most of the increase in orders is due to pull-forward purchases, as fleets try to minimize the negative impact of more costly engines being introduced on Oct. 1. While this will likely have a favorable effect on second and third quarters, the fourth quarter of 2002 could be unfavorably impacted as a result of the accelerated buying."
Why are fleet companies so anxious to avoid the new engines? Opponents of the new environmental regulations have no shortage of reasons: prices as much as $5,000 higher for a new engine than a current engine and higher maintenance and fuel costs among them. That’s enough incentive to get even the most cautious companies to buy big rigs when the state of the economy and industry remain uncertain, says Richard Henderson, an analyst at Credit Suisse First Boston Inc. "That would be a majority of why demand has picked up. To a much lesser extent would be improved economic activity. I think the main drivers of heavy-duty sales are really capital spending and industrial production. And clearly there’s been some improvement, but not that much."
The sales trend has caught the eye of the Environmental Protection Agency and the Dept. of Justice, which began investigating earlier this month if engine-makers are wrongly promoting sales of the soon-to-be-outlawed powerplants (see related story: EPA Probes Heavy Duty Engine Marketing).
The Oct. 1 legislation levies a $15,000 fine against an engine maker for every powerplant sold after that date.
Keate says International is attempting to educate its customers about the new engines. "The fear of the unknown is going to go away pretty quickly," Keate says.