OEMs Face Parts Shortages as Demand for Trucks Surges

This story appears in the July 4 print edition of Transport Topics.

Heavy-duty truck manufacturers said they are experiencing rolling components shortages as suppliers who survived the recession struggle to keep up with the unexpectedly rapid surge in demand for new trucks.

Some OEMs said they expected the problem to get worse later this year as they all strive to dramatically increase their production levels.

New truck orders accelerated late last year, jumping to more than 25,000 in November, then reaching 36,000 in April and about 24,000 in May (6-13, p. 1). Class 8 sales were 68% above year-ago levels in May and are up 42% so far this year (6-20, p. 1).

“We have never in the history of our industry tried to ramp-up this fast,” Joseph McAleese, chief executive officer of Bendix Commercial Vehicle Systems, Cleveland, told Transport Topics. Bendix makes compressors, valves, stability systems, driver assistance systems and foundation brakes.

“While we anticipated that commercial truck volumes would significantly increase in 2011 and 2012, the run-up has been much steeper than expected, with volumes in North America expected to approach a 70% year-over-year increase in 2011,” Carsten Reinhardt, chief operating officer of Meritor Inc., told TT.

Meritor, based in Troy, Mich., manufactures axles, brakes, suspension systems and other parts for trucks and trailers.

In early June, David Hames, general manager for marketing and strategy at Daimler Trucks North America, told TT that rising global demand for rubber, copper, aluminum and iron “are impacting manufacturing in our industry in terms of supply constraints and material costs.”

That same week, a Navistar spokesman told TT that supplies for every truck builder had suddenly gotten tight for tires and for key metal parts, especially axles.

DTNA builds Freightliner and Western Star trucks, and Navistar builds International trucks. Both companies said these problems were short-term only.

Kyle Treadway, president of Kenworth Sales Co., West Valley City, Utah, told TT in early June that new-truck deliveries were on schedule, but a few weeks later he said, “We’re seeing component problems just surfacing now.”

Treadway told TT, “First, we learned there was trouble with prices and supplies of rubber for tires, and then steel for brake drums, and then we heard that computer wiring harnesses might be delayed.”

Treadway said that Paccar Inc., parent company of Peterbilt Motors Co. and Kenworth, told dealers that “these will be short-term delays, but I don’t know.” Paccar did not respond to a request for comment.

Kevin Flaherty, senior vice president of Mack Trucks Inc., told TT in mid-June, “We are managing through some component supply issues which, so far, have not impacted our production. We do not rule out increased shortages this fall.”

“The biggest component problems are still to come, because we expect [truck] orders will be 50% higher in the third and fourth quarter than the first half of the year,” Bendix’s McAleese said.

“We are continuing to ramp up production, and we’re not complete yet,” McAleese said. “It’s a tremendous achievement to deliver 90% of ordered parts in this ramp-up environment but, as everyone knows, you need 100% of a truck’s parts to finish it,” he added.

Tim Kraus, executive director of the Heavy Duty Manufacturers Association, said most members faced broad problems to meet the unexpectedly strong demand.

“The main shortages so far are in electronics and plastic resins, with price problems making up the balance of the issues,” Kraus told TT.

Kraus added that HDMA’s Tier 2 and 3 members, which supply parts that go into axles, transmissions and engines of Tier 1 suppliers, “suffered greatly . . . during the recession . . . and many are having a tough time ramping up to current capacity requirements.”

“Electronic components seem to be the worst in terms of availability, and this obviously is affecting price and delivery,” Jack Shaffer, chief executive officer of Bergstrom Inc., Rockford, Ill., told TT. “Lead times have increased from 50% to 100%, depending on the product.”

Bergstrom manufactures vehicular heating and cooling systems for heavy-duty trucks.

“Our strategy of carrying additional inventory has paid off since we have kept our on-time shipment levels at a normal rate,” Shaffer added. “However there is . . . scrambling on a daily basis to react to the demand increase and the supply shortages.”

Tim Musgrave, chief executive officer of Pressure Systems International, San Antonio, said that “forecasting demand, not ramping-up supply,” was his company’s biggest problem.

PSI manufactures tire inflation systems, including those for trucks and trailers.

Musgrave said that PSI met the “huge increase in volumes” in two main ways.

“First, we doubled our inventory of parts even before rising orders started,” Musgrave explained. “Second, we had contingency plans with our suppliers.”

He said that included having “long-term agreements” and talking “with them on a regular basis, through good and bad times.”

“So far we have been able to meet the requested demands of our customers, with few exceptions,” Patrick Cavanagh chief executive officer of Williams Controls Inc., Portland, Ore., told TT.

Williams Controls manufactures electronic throttle controls, accelerator pedals and sensors.

“Our on-time delivery to our customers’ requests is in the mid-to-upper 90% range and has been there most of this year, Cavanagh added. “Our concerns, however, focus in two areas: specialty electronic components and rare-earth magnets used in sensors.”