Heavy-Duty Truck Orders Plunge in July

This story appears in the Aug. 13 print edition of Transport Topics.

New Class 8 truck orders plunged 31.1% in July from the year-ago level to 12,900, the lowest monthly total since August 2010, according to preliminary data from ACT Research Co.

It was the seventh straight orders decline on a year-over-year basis. Orders also fell 22.7% from June, ACT Vice President Steve Tam told Transport Topics.

July is historically the weakest month of the year for new orders, “but even adjusting for that, it was below expectations,” Tam said.

“Everyone’s sitting on their hands right now, kind of just waiting for something to happen, for confidence to pick up, for some positive sign that makes them

feel good about making that decision,” he said. “They’re uncertain about the near-term future. Rather than commit, everyone’s just sort of hesitating.”

Tam added that ACT was planning to reduce its full-year forecast “to recognize the persistent softness in orders.”

Preliminary data from FTR Associates, another transportation research group, also showed that net truck orders dropped in July to 12,568, the lowest since August 2010.

Although industrywide orders in July were “disappointing,” Daimler Trucks North America was expecting lower order activity because of the summer seasonal slowdown, said David Hames, the company’s general manager of marketing and strategy. “We believe the current weak economy has impacted fleet purchase timelines but remain cautiously optimistic that order levels will rebound as we head into the fourth quarter of the year.”

John Walsh, vice president of marketing for Mack Trucks Inc., said the prolonged slowdown in orders is “primarily driven by ongoing economic uncertainty.” Mack still expects 2012 to be a good year, he said, but “we’ll continue to monitor market conditions and adjust our production activities accordingly.”

Ron Huibers, president of North American sales and marketing for Volvo Trucks, said “concerns about the economy have prompted some carriers to delay purchasing decisions, but replacement demand is still strong. We said at the outset of the year that 2012 would be choppy, and that has held true.”

During July, Volvo Trucks, which makes Volvo and Mack trucks, and Paccar Inc., the parent company of Kenworth and Peterbilt trucks, both announced plans to trim production (7-30, p. 5). Paccar Inc. and Navistar International Corp. did not provide comment by press time.

The slowdown in truck orders also is affecting parts manufacturers.

“We’re in economic purgatory,” Eaton Corp. CEO Alexander Cutler told The New York Times last week. “In the nondefense, nongovernment sectors, that’s where the caution is creeping in. We’re seeing it when we talk to dealers, distributors and users.”

Cutler noted weakness in the heavy-duty truck market in particular, The Times reported.

Dick Witcher, CEO of Minuteman Trucks Inc., a vocational truck dealer in Walpole Mass., said the weakness of the new order intake for July, combined with the trend of falling orders, has caused “a good deal of concern on my part about where we’re heading.”

Witcher, who is also chairman of the American Truck Dealers, said the business community is worried about the next 12 months, in large part because Democrats and Republicans in Congress “do not appear willing . . . [to] find ways to come together to help the country.”

Truck makers’ backlogs, which stood at 88,000 units at the end of June, the most recent figures available, have shrunk five months in a row since reaching 125,200 in January, Tam said.

“We’ve got some reasonable cushion in the backlog, so we can stomach some weakness like this,” he said. “We’re not going to panic at this point. There’s no reason to assume the industry’s falling apart. All the demand fundamentals are really still very solid.”

Analyst Ann Duignan, writing to clients of J.P. Morgan Securities, said manufacturers’ backlogs still should support production in the second half of 2012, despite the weak new orders intake.

“At some point, however, backlogs will be largely depleted and production activity later this year is at risk, unless orders pick up in the near term,” she wrote.

One positive development is that, although new orders have slowed, cancellation activity is low. “The guys who have orders on the books are confident in those orders,” Tam said.

Truck order cancellations as a percentage of backlog were 1.3% at the end of June, compared with the 2.5%-to-3% long-run average range, he said.

Looking ahead, Tam also expressed optimism about the final months of 2012. “We honestly think that we’ll work through this third quarter and then start to see the pickup in the fourth quarter as the cycle begins to repeat itself,” said Tam. “That’s predicated on the economy, which needs to get out of the 1.5% growth mode . . . and we think it will.”

ACT expects truck orders to average about 25,000 per month in the fourth quarter, Tam said.