Opinion: Looking for Meaning in Truck Sales Numbers

Over the past few years, the reporting of truck retail sales numbers has taken on increased significance for trucking.

While truck manufacturers use the monthly sales figures principally to determine their market share, many investment analysts have begun using the data in a new way — as a proxy for freight-hauling capacity.

Evidence of the connection between truck sales and trucking capacity appeared strong in 1995, when sales of Class 8 tractors hit a record of 201,304 units and was closely followed by overcapacity and falling profits, especially among truckload fleets.

Fear of a repeat performance emerged in 1998 when truck sales climbed to record levels once again. This time, however, there appears to be no sign of overcapacity.

So, what is the real significance of truck retail sales?

First, some caveats. Retail sales do not count sales to dealers, even though most manufacturers count them as sales on their books.

For another, the sales figures — until recently compiled by the American Automobile Manufacturers Association and now by Ward’s Automotive Reports — are limited to the United States. Sales in Canada and Mexico could add at least 20% to the sum this year.

Most analysts no longer look just at retail sales to judge the outlook for trucking capacity. James J. Valentine of Morgan Stanley Dean Witter focuses on net orders — total orders minus cancellations.

By keeping tabs on cancellations as a percentage of gross orders, Mr. Valentine thinks he can detect changes in the truckload business environment.

Cancellations skyrocketed in mid-1995, for instance, long before retail sales began to tail off in response to overcapacity in the operating industry.

Which illustrates another shortcoming of truck retail sales numbers: Sales reflect orders placed months ago, and trucks ordered today probably will not be delivered until 2000 or later.

Kenny Vieth, director of business operations for ACT Research Co., said retail sales “tell you where we have been,” whereas truck orders and backlogs “are telling you where the industry is heading.”

Inventory levels are a good indicator of market sentiment, said Mr. Vieth, whose firm publishes detailed statistics and analysis of truck sales and production numbers at its headquarters in Columbus, Ind.

John Merrifield, senior vice president of sales and marketing for Sterling Trucks, said 20% of the company’s retail sales reflect current buying decisions. The remaining sales are the result of orders placed by customers as long as a year ago.

Truck orders, therefore, give a better picture of current business conditions than retail sales, he said.

Another way to evaluate truck sales is to look at backlog.

As orders have increased, so have backlogs for nearly all truck manufacturers. And rising backlogs, one could argue, contribute to rising orders.

Because truck buyers are forced to order up to a year in advance, some fleets may find they have more vehicles on order than they need. Manufacturers refer to this as water in the order bank. No one has a clear idea of how much water is in the order numbers, but it is a factor that ultimately could have a major effect on retail sales.

Mr. Merrifield acknowledges the difficulty fleets face in ordering trucks based on future business conditions. He notes that most trucks ordered are for replacement of existing vehicles, which can be planned with greater certainty than purchasing vehicles for growth.

“The current economic cycle has helped,” he said. “The long uptick helps everybody.”