May Truck Orders Fall 23%

U.S. Class 8 truck orders continued to slump in May, dropping 23% from year-ago levels and declining for the fifth consecutive month as economic, financial and regulatory uncertainty dampened fleets’ buying decisions, analysts said.

The order pace was gauged at about 18,000 last month, compared with 23,337 a year earlier, ACT Research, Columbus, Ind., reported on June 5. The May orders level, however, was 5% higher than the month before.

ACT issued its latest orders report days after the U.S. Commerce Department scaled back its estimate of first-quarter gross domestic product growth to 1.9% and American Trucking Associations reported tonnage growth slipped to 3.8% in the first four months of 2012 from 5.8% during all of last year.

ACT President Kenny Vieth said the recent order pullback is a matter of carriers’ confidence.

“There is a risk-reward scenario that [potential buyers] face,” Vieth said, because of a softening economy and higher truck prices in 2012. “A number of guys out there are looking at $90,000 or $100,000 loans and asking, ‘How much debt am I willing to take on?’ ”

Moderating freight demand “may have sowed seeds of uncertainty in the minds of truck buyers,” analyst Stephen Volkmann said in a June 5 report for Jefferies & Co. He also cited Europe’s financial situation as a reason for growing caution.

Bailey Wood, a spokesman for the American Truck Dealers association, added another element.

“Economic uncertainly is definitely one aspect of it, but the other big aspect of it is regulatory uncertainty,” Wood said. “With the administration constantly changing the rules on everything from health care to environmental policy, nobody knows what’s going on.”

Manufacturers blended caution with longer-term optimism.

“We see the current trends as a bit of a pause,” Ron Armstrong, president of Paccar Inc., said last week on a conference call. “The trend hasn’t been there for a long enough period to say otherwise.”

“There is a bit of uncertainty that our customers are looking at,” he said, citing factors such as the global effects of Europe’s continuing financial woes. Armstrong also said “fundamentals are good,” citing factors such as tonnage, rates and carriers’ strong cash flow.

“We remain cautiously optimistic about the 2012 truck market despite recent industry concerns. NAFTA Class 8 orders rose 5% in May and the fundamentals are still in place for a good year,” Todd Hooper, Daimler Trucks North America director of marketing operations, told TT.

“While we continue to expect 2012 to be a good year for trucking and Mack, we’re keeping a close watch on the longer than expected period of tepid industrywide order intake,” said John Walsh, vice president of marketing for Mack Trucks Inc. Walsh said slowing orders, sluggish job growth in the United States and economic uncertainty elsewhere could have a dampening effect on 2012 orders.

Vieth and Volkmann also stressed underlying economic positives.

“The fundamentals suggest this is just a temporary pause,” Volkmann said in his report, citing factors such as a continued growth in loads, a generally healthy industrial economy, solid carrier profitability and the continuing need to update the aging truck fleet.

Buyers retain long-term confidence, Vieth said, citing the fact that order cancellations remain far below the levels seen during the recession.

The cancellation rate, as a percentage of order backlog, was just 1.3% last month, compared with a peak of 8.8% in October 2009.

Improvement in the order pace isn’t expected during the summer months, and possibly not much after that.

“July and August are typically the softest order months of the year,” Vieth said.

“These recent trends are a concern for late-year builds,” Ann Duignan, a JPMorgan analyst, said in a report. “One of the challenges as we look out into July and August is that it’s hard to see the order trend gaining much traction prior to December,”

Orders “look to be in for [a] longer near-term pause,” Volkmann said in his report.

He said a late 2011 “pre-buy” by fleets was driven by two factors — avoiding 2012 price increases and capitalizing on bonus depreciation benefits that expired at year-end.

Vieth said he believed the number of orders pulled forward into 2011 because of expiring bonus depreciation was about 5,000 units. Efforts in Washington to revive bonus depreciation this year could help to spur orders, he noted.

“That definitely couldn’t hurt,” he said.

Staff reporter Michele Fuetsch contributed to this report.