March Truck Orders Drop 31%, Marking Third Straight Decline

Factory orders for heavy-duty trucks declined for the third-straight month in March, sparking discussion over whether interest in new North American trucks is waning or if the industry is temporarily at rest.

The preliminary net figure for March was 20,000 Class 8 units, a 31% drop from the 28,987 vehicles ordered in the same month of 2011, ACT Research Co. said in an April 3 report. In February, orders fell 7.3% to 22,366 heavy trucks.

“As was the case in February, we attribute softness in Class 8 orders to near-term phenomena, including a pull-back in confidence brought about by the fall-off in freight at the beginning of 2012, coupled with the subsequent run-up in diesel prices since the beginning of the year and higher reported Class 8 prices,” said Kenny Vieth, president of ACT, Columbus, Ind.

The latest order total is disclosed two weeks after the Mid-America Trucking Show, where truck makers gathered and were unanimous in predicting sales improvements for this year over 2011. So far this year, retail sales have significantly topped figures for last year (3-19, p. 1).

However, Dan Sobic, executive vice president of Paccar Inc., did comment on the downturn in orders after a speech in Louisville and said his customers for Kenworth and Peterbilt Trucks were involved in a “thoughtful reconsideration” of how much to buy and when. For the year as a whole, though, Paccar management ex­pects industrywide heavy-duty North American sales to continue rising to between 210,000 and 240,000 vehicles this year from 197,000 in 2011.

Some Wall Street analysts seized on the ACT report to raise questions about sales and production for this year, according to a survey by Bloomberg News.

“Unless monthly orders top 28,000 units, it’s ‘almost certain’ manufacturers will be forced to cut production in the second half; first half may be ‘as good as it gets’ on margins,” Bloomberg said, quoting Laura Lembke of Morgan Stanley.

“The trailing three-month run rate implies 270,000 units per year, missing the ACT estimate of 300,000,” J.P. Morgan Securities analyst Ann Duignan said in the survey, although Duignan also said she expects 2012 sales to grow and that truck makers are now facing tough year-over-year comparisons.

In an interview following the report’s release, Vieth said he does not expect the streak of declining orders to continue for much longer, mainly because the U.S. economy is on the upswing, albeit slowly.

“The freight data sources are generally favorable now for trucking. Recent economic indicators have usually come out more positive than in their pre-release estimates,” Vieth said, pointing to auto sales as an example.

U.S. sales of cars and light trucks rose 13% in March, the industry’s best quarterly pace since 2008, as buyers who put off purchases returned to dealerships to buy more fuel-efficient models. Deliveries accelerated to a 14.4 million seasonally adjusted annual rate from 13.1 million a year earlier, according to researcher Autodata Corp., Bloomberg News reported April 3.

In addition, factory orders rose 1.3% in February, the third increase in four months, the Commerce Department said on April 3.

Paccar’s Sobic was not the only executive at MATS to talk of improving sales. Andreas Renschler, head of Daimler AG’s global trucks division, went so far as to compare the current truck-manufacturing environment to a party and said North America is probably the world’s most robust truck market now.

Vieth said part of the reason the first quarter looked patchy is that it followed an uncommonly strong fourth quarter.

“We had a very strong end of the year, and bonus depreciation drove a lot of that,” he said, describing a virtuous rather than a vicious circle. Not only did fleet owners buy a large number of trucks in the fourth quarter — trying to capitalize on an expiring tax break — but firms in many other industries bought their own capital equipment, thereby generating freight to be hauled.

“All of those capital goods being purchased led to a whole host of goods that needed to be moved. There was a huge spike in freight in December that led to a pull-forward of freight, with the normally soft first quarter becoming a deeper-than-normal drop,” Vieth said.

“We’ve seen a little bit of slowness in orders, but the freight is there,” said Robert Nuss, a Minnesota-based dealer of Volvo and Mack trucks.

“I haven’t heard any customers complain about a lack of business over the last year,” Nuss said, adding that many Minnesota businesses have enjoyed some of the spillover of neighboring North Dakota’s energy prosperity. Nuss said many of the state’s contractors have picked up work there, and demand has increased for sand mined in Minnesota that gets used in hydraulic fracturing.

“What we’re seeing now is just a little pause, I think. If it stays until June, then I’ll be concerned, but I think the quarter just ended will prove to be our best first quarter since 2006,” Nuss said.