Truck Orders Remain Firm

This story appears in the Jan. 14 print edition of Transport Topics.

Customers ordered 21,300 heavy-duty trucks in North America in December, in line with the full year’s business levels but far below the corresponding month in 2011, ACT Research Co. reported.

The preliminary December total was 29.7% weaker than the 30,293 ordered in December 2011, an especially strong month.

But last month’s orders were 5.8% over November’s level and compared favorably to the first 11 months of 2012, when the average rate for new orders was 18,927 a month.

“We were hoping for better because December is usually a strong month,” said ACT President Kenny Vieth in an interview. “But with the federal fiscal situation we just got through, it could have been a lot worse.”

Daimler Trucks, North America’s largest heavy-duty truck maker, was more enthusiastic.

“While orders were up 6% for the industry, DTNA’s Class 8 orders were up 28.4% over a strong November,” said David Hames, Daimler’s general manager of marketing and strategy.

“We believe that orders over 20,000 for December are a positive signal, as we move into the seasonally slow first quarter, that there is increasing confidence in the economy,” Hames said.

December was the third straight month where orders topped 20,000, according to ACT.

“The economy appears to be getting better with a pretty slow recovery, but nothing that’s spurring significant new truck purchases beyond replacement. Ultimately, we’re seeing fleet customers replacing trucks that need to be replaced,” said Navistar Inc. spokesman Stephen Schrier.

“We’re seeing some choppiness in industry orders the last couple months, but our forecasts point to an overall lower first half and an increasing industry in the second half of 2013,” said Schrier. He added that Navistar’s management is pleased the bonus depreciation for investment was extended as part of the “fiscal cliff” agreement between Congress and the White House (1-7, p. 1).

A stock analyst who follows equipment manufacturers said this year’s first quarter could be busier than normal.

“Although first-quarter orders typically drop from the fourth quarter, our sense is that orders could remain in this 20,000-to-22,000 range as orders deferred because of ‘fiscal cliff’ concerns are placed and fleets validate Navistar trucks with Cummins engines,” Timothy Denoyer wrote to clients of Wolfe Trahan & Co.

Vieth said the pace of orders during the first half of the year will be particularly critical to monitor because the backlog of unfilled orders is at a relatively low level. ACT’s backlog-to-build ratio was 3.5 months in December, up from 3.2 months in November. He called November’s level “as lean as you’re typically likely to see.”

“Right now, the industry is living hand-to-mouth on orders with no backlog left to cannibalize,” said Vieth.

As to which way orders will move next, Vieth said there is no obvious answer. The federal budget problem, which he said has caused a lot of worry among truck buyers during the second half of 2012, was  patched only temporarily and not truly fixed.

In contrast, looking at recent economic news makes an argument for slow, continuing expansion. Vieth cited improvements in auto sales and the housing industry, along with low consumer debt and rising disposable income, as signs of sound economic fundamentals.

Analyst Ann Duignan told clients of J.P. Morgan Securities, “U.S. macroeconomic indicators for truck purchases are mixed at the current time,” and that has filtered through to projections by truck makers.

“Initial 2013 [original equipment manufacturer] guidance is for modest growth at best. Paccar’s outlook is for 5% growth at the midpoint, while Navistar is projecting a 7% decline. Volvo currently expects a flat year in 2013,” Duignan said.

Kenworth Truck Co. declined comment for this story. Other truck makers did not return requests for comment.

On the medium-duty side, ACT recorded net new orders for 14,200 Class 5-7 trucks in North America in December, a 2.2% improvement from the same month in 2011. In November, orders had been 14,100.

Wolfe Trahan’s Denoyer said improvements in home construction and stronger local government budgets should help medium-duty demand, along with the need for reconstruction in the Northeast after Superstorm Sandy.