Truck Orders Decline 22.3% in June to Lowest Level Since 2010, ACT Says

This story appears in the July 16 print edition of Transport Topics.

North American Class 8 truck orders fell 22.3% in June from a year earlier to 16,500, the lowest monthly figure since September 2010, according to preliminary data from ACT Research Co.

Even as orders declined for the sixth straight month on a year-over-year basis, manufacturers are continuing to build trucks at a high rate, ACT Vice President Steve Tam told Transport Topics.

“They just really have been roaring so far this year,” Tam said.

Sequentially, new truck orders dropped 8.3% from 17,988 in May. For the first half of 2012, manufacturers received orders for 119,248 trucks, down 26.9% from a year earlier, ACT reported.

This softening of orders could mean that truck makers will need to slow down production, Tam suggested.

“They’re building at a rate that’s too high,” he said. “They’re consuming the backlog at too quick of a rate. Unless they get a massive influx of orders, which so far hasn’t happened, those build rates just are not sustainable.”

Tam predicted that production will likely soon cool. Even so, ACT is forecasting that full-year production will rise to 288,200 from 255,261 in 2011.

Manufacturers already have built about 155,200 units in the first half of the year, so the forecast “allows for them to slow down a little bit” in the second half, Tam said.

The rapid build rate has begun to eat into manufacturers’ backlogs, which stood at 96,900 in May, compared with 126,800 in the same month a year ago, he said. Backlog data for June were not yet available.

Kyle Treadway, president of Kenworth Sales Co., Salt Lake City, which operates 18 dealer locations in seven states, agreed that manufacturers will slow their build rates.

“I think that’s just inevitable when you see the orders doing what they’ve done,” said Treadway, who also is past chairman of American Truck Dealers. “I think they’re all going to cut back on production. They’re going to have to.”

Engine maker Cummins Inc. noted the slowdown on July 10, as it lowered its full-year revenue outlook. Cummins expects 2012 revenue to be “in line” with 2011, compared with its previous guidance of a 10% increase.

“We have seen demand in some markets weaken recently as growth in the global economy has slowed,” Cummins Chairman and CEO Tom Linebarger said in a statement. “Order trends in the U.S. for trucks and power generation equipment have softened, and demand in Brazil, China and India is not improving as we had previously expected.”

Cummins expects its production level for 2012 to be flat, where it had previously anticipated growth from the previous year, said Carol Lavengood, the company’s director of marketing and communications.

Truck makers declined to comment on the possibility of production cuts, but several said they had been expecting a drop in orders during June.

“We are not surprised to see a drop in Class 8 industry orders from May to June, given the typical summer slowdown,” David Hames, Daimler Trucks North America’s general manager of marketing and strategy, said in a statement. “We do see evidence that the tumultuous global economic situation is affecting industry customers, who are maintaining a steady, but conservative, focus on replacement purchases.

The declines in truck orders so far this year reflect “a weak economic recovery,” Paccar Inc. Executive Vice President Bob Christensen said in a July 10 statement.

Treadway said some truck orders that might otherwise have been placed early this year were instead “pulled forward” to the fourth quarter of 2011.

“With accelerated depreciation changing at the end of the year, a lot of the carriers took advantage right up to the deadline, then we kind of had a cliff event where orders fell off,” he said.

Treadway also said fleets are increasingly turning to truck leasing and rental.

Marvin Rush, chairman of Rush Enterprises Inc., said the “biggest problem” for fleets is uncertainty about the economy, the election and taxes.

“Once they get some stability in the economy and know where things are headed for sure, I think you’ll see them start buying some more,” he said.

Rush Enterprises, which sells Peterbilt and Navistar trucks, operates the largest network of commercial vehicle dealerships in the United States.

ACT’s Tam also said uncertainty has contributed to fleets’ decisions to delay ordering new trucks.

“They haven’t decided not to buy,” he said. “They’re just waiting to buy.”

Randal “Tiger” Meaux, a sales representative at Peterbilt of Lafayette in southern Louisiana, said customers are waiting until after the election in November.

Nearly all of those fleets serve the oil and gas industry, he said.

Meaux also said the large fleets generally seem to be in a holding pattern, but smaller fleets are purchasing more aggressively.

Those small fleets have made a lot of money so far this year and they’re looking to invest it in new equipment, but, “They’re not waiting until last minute like years past,” he said.