Key indicators for future commercial truck sales growth aren’t signaling an impending turnaround for a market that’s been mired in a recession for two years.
Motor carrier traffic is sluggish, fleets are relatively new, insurance and security costs are rising, fuel prices are higher and banks are tightening requirements for loans, says Ken Kremar, principal-industry practices group for Global Insight Inc. (formerly DRI-WEFA), an economic and financial research firm.
"Insurance premiums are going through the roof and security costs are up too, with trucks possibly being used as weapons of mass destruction," points out Bob Costello, chief economist and vice president at Global Insight.
|Commercial truck industry has been in a recession since 2000, and analysts believe it won’t fully recover until 2005.|
Alarmingly, two major markets for medium- and heavy-duty trucks, manufacturing and construction, are deteriorating after performing strongly while other segments of the economy foundered. Even minor markets for big trucks, such as farming, logging and mining, are struggling, Kremar adds.
While Global Insight predicts medium- and heavy-duty sales in the U.S., Canada and Mexico will improve every year from 2003 to 2007, the increases during the first few years of that span will be minor. "We expect to see some improvement in 2003 and 2004. But there hasn’t been enough momentum to jumpstart sales," Kremar says.
Paul Ballew, general director of market and industry analysis forCorp., provides a similar outlook.
"We’ll see some recovery in late 2003. But it’s likely to be gradual, and then (remain) gradual into 2004," Ballew says.
"The market has been so depressed and vehicle sales have fallen off so far that it wouldn’t surprise me to see some gains next year. But they’ll probably be pretty slight, and then (there will be) some acceleration into 2004. And it really requires some gains in business investment and brisker growth than 2.5% growth in the economy."
Sales of medium- and heavy-duty trucks in the U.S. totaled 350,007 units in 2001, down 24.2% from the 461,918 big rigs delivered in 2000, according to Ward's data.
It was the second consecutive year sales figures have posted a double-digit decline in the U.S. vs. previous year results, following a banner year in 1999, when deliveries hit 521,190 units.
Through November, U.S. big truck sales totaled 297,399, a decline of 8.4% from year-ago, Ward's data reveals. And deliveries through the first 10 months of this year were aided by new environmental regulations that were instituted Oct. 1.
The new policies require new engines with lower emissions, and that has pushed prices up and performance down. As a result, there has been a rush by fleet owners to buy big trucks equipped with the less expensive and better performing powerplants before Oct. 1.
Costello cites a survey of an undisclosed number of participants by the American Trucking Assn. that indicates nearly 40% bought a truck prior to the Oct.1 deadline. The report also reveals that more than 90% of the surveyed companies did not intend to buy a new truck during October-December 2002.
Kremar says a "pre-buying hangover" will dampen heavy-duty sales in 2003. "There is going to be payback. We’re looking for the fourth quarter to drop like a rock, and the first quarter is going to be pretty miserable too."
In fact, Kremar believes the commercial truck segment won’t return to the level of its late 1990s heyday until mid decade. Global Insight predicts sales of medium-duty trucks (Class 4-7) in the U.S., Canada and Mexico won’t surpass the 270,000 units sold in 2000 until 2005 – the first of three straight years forecast to rise above 270,000.
After declining for the two consecutive years, North American production of Class 4-7 trucks will increase in 2003, Global Insight projects. Output will continue to rise annually through 2006 when production will top 250,000 units and then decline slightly in 2007.
After three years of considerable declines, the Massachusetts-based company projects the North American heavy-duty truck market will be flat in 2003 vs. 2002 results.
A sharp increase will occur in 2004 to more than 250,000 units, followed by more growth in 2005 to 300,000 units. Global Insight predicts sales will fall slightly in 2006 and 2007.
Annual Class 8 North American production will remain at about 175,000 units through 2003. In 2004, Global Insight anticipates outturn to total more than 250,000 units.
Production is expected to hit 300,000 in 2005, followed by two years of decline to 250,000 in 2007.