Truck Orders Climb 51%

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

The Class 8 industry ended 2013 on a high note, as December truck orders surged 51% from year-ago levels, reinforcing manufacturers’ views that more growth could be coming in 2014.

North American truck makers last month pulled in about 31,800 net orders, the strongest total since April 2011 and second-highest since the 2006 “pre-buy” event ahead of new federal emissions standards, ACT Research Co. reported.

Last month’s tally also was a 49.6% jump from November’s total of 21,255, according to ACT’s preliminary data.

“It’s out of the park,” said ACT Vice President Steve Tam.

Likewise, research firm FTR Associates pegged December net orders at 31,506 units, compared with 20,808 in the same month a year ago.

Analysts, including Tam, attributed the spike to large fleets and leasing companies placing big orders, original equipment manufacturers offering incentives and, to a smaller extent, a rush to buy equipment before the year-end expiration of bonus depreciation that allowed fleet owners to write off 50% of the cost of new equipment purchases during the first year of ownership.

The majority of the orders placed in December were for production in the first or second quarter, Tam said.

“Orders ahead of New Year price increases and the expiration of bonus depreciation may have helped, but was probably modest, given limited availability of December delivery slots,” said Jefferies & Co. analyst Stephen Volkmann.

Fleets had to receive the equipment before the end of 2013 in order to qualify for the accelerated depreciation. At the end of November, manufacturers only had about 2,000 open build slots for December, Tam estimated.

Ann Duignan of J.P. Morgan said the relative old age of the North American truck fleet also supported higher demand.

“While truck orders are always lumpy, the bottom line is that Class 8 truck orders continue to get better, and we are starting 2014 in a much better place than a year ago,” said Rhem Wood of BB&T Capital Markets, who described December as an “exceptional” month.

“We are seeing ordering above levels of replacement, which would suggest we are starting to grow the fleet a little bit,” ACT’s Tam said.

However, Deutsche Bank analyst Justin Yagerman sounded a note of caution.

Although the Class 8 fleet “remains very old,” the fact that order activity is outpacing replacement demand “may serve to add incremental truckload capacity if freight demand does not continue to grow,” he said.

David Hames, general manager of marketing and strategy at Daimler Trucks North America, said his company views December’s results as “a positive sign.”

“We anticipate a market with slight upside potential in 2014 and expect first-quarter performance to provide an indication of market performance in 2014,” Hames said.

John McKinney, senior vice president of North American truck sales and president of global bus at Navistar International Corp., said the industry “continues to experience both headwinds and tailwinds,” despite a strong order month in December.

“We believe customers are still cautiously optimistic about the economic environment and are concerned about the driver shortage and hours-of-service restrictions,” McKinney said. “While we see some improvements in the housing and automotive sectors, we maintain our industry forecast for 2014 with growth between 5% and 10%.”

Other OEMs declined comment or did not respond before Transport Topics’ deadline.

“The strong showing puts OEMs on track to meet first-quarter targets and provides momentum headed into the second quarter,” said Don Ake, FTR’s vice president of commercial vehicles. “Fleets and dealers are showing more optimism.”

December’s strength in new orders helped truck makers add to their backlogs heading into the new year, ACT’s Tam said. The North American OEMs finished 2013 with about 94,000 orders in backlog, up about 14,000 from the end of November, according to ACT’s data.

In full-year 2013, OEMs booked 267,640 truck orders, up 16.9% from 2012.

December’s year-over-year comparison also benefited from weakness in the market in late 2012, when concerns about the federal budget debate and the “fiscal cliff” caused some fleets to delay placing orders.

Going back another year, last month’s total was just 5% higher than the 30,293 orders OEMs received in December 2011, according to ACT.

Nevertheless, it was still the highest December tally since 2005.

The last time orders were so strong was April 2011, when ACT counted 38,094. Tam attributed that surge to pent-up demand after many fleets extended their trade cycles during the recession.

With the exception of that month, December’s total was the highest since March 2006, when manufacturers booked 52,200 orders as buyers scrambled to place orders ahead of the 2007 emissions standards.