Truck Orders Soar 36.2%

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

New Class 8 truck orders in North America rose in April to 23,300, the highest tally in 15 months, ACT Research said, leaving analysts to predict that manufacturers will ramp up production soon.

The preliminary April total was 36.2% higher than the 17,105 net orders placed during the same month last year. It also was the seventh straight month that North American truck orders surpassed the 20,000 mark, ACT said.

Sequentially, last month’s tally increased 5.9% from the 22,011 orders placed in March.

ACT Vice President Steve Tam said that truck makers, with backlogs bolstered by the recent strength in new orders, will increase production in the months ahead.

“That’s not only our expectation — we’re starting to hear those comments in the industry,” he said.

Through four months, original equipment manufacturers have booked 90,646 net orders in 2013, up 6.9% from 84,760 in the same timeframe in 2012, according to ACT.

ACT projected that manufacturers, having built about 55,000 Class 8 trucks in North America during the first quarter, will boost production to about 66,000 units in the second quarter, 69,000 in the third quarter and 72,000 in the fourth.

“Given the level of Class 8 activity, driven primarily by the need to replace aging vehicles, as well as the increase in tonnage levels, we continue to expect improving market conditions moving through the second half of the year,” said John Walsh, vice president of marketing at Mack Trucks Inc.

David Hames, general manager of marketing and strategy at Daimler Trucks North America, told Transport Topics that his company is “encouraged by the continued strength in orders.”

“While the industry should begin to increase backlogs following the slower-than-expected 2012, we do not expect retail sales to increase significantly until late 2013,” he said.

Other truck makers did not respond to requests for comment by press time.

While orders have been up, retail sales have been slipping, Tam said.

U.S. heavy-duty truck sales in the first three months of the year totaled 38,805, down 17.2% from 46,845 in the first quarter of 2012, WardsAuto.com reported. April sales data were not yet available.

As a result of the divide between orders and sales, backlogs increased to about 85,900 units at the end of March from 73,720 at the beginning of the year, Tam said. He estimated that backlogs grew by about 2,000 in April.

“The stability in orders since last fall in the midst of OEM production cutbacks has helped grow industry backlogs and supports views for a rebound in Q2 production versus a weaker-than-expected Q1,” David Leiker said in a note to clients of Robert W. Baird & Co.

Rhem Wood of BB&T Capital Markets said this year’s first quarter “should be the trough” for Class 8 production, which is expected to ramp up through the remainder of 2013 and into 2014.

Higher build rates would signal a reversal from earlier this year, when truck makers took action to trim production.

In March, DTNA said it would lay off about 600 factory workers, though that was fewer than half of the 1,300 jobs it previously said it might cut to match production rates to incoming orders.

In January, Volvo Trucks and sister company Mack Trucks implemented layoffs affecting about 300 and 175 workers, respectively.

While the industry is rebuilding backlogs in 2013, the opposite occurred last year.

Manufacturers began 2012 with 125,000 units in backlog but burned that down to 67,100 by September, Tam said.

“We darn near cut the thing in half,” he said. “Since September, we’ve been on the mend.”

Tam said truck buyers are still apprehensive about the future, in part because of “doom and gloom” surrounding the sequester, but he said the reported 2.5% growth in gross domestic product for the first quarter is “not a bad number.”

“The framework hasn’t changed. It’s very conservative, reserved growth,” Tam said. “I know people are impatient to see faster growth, but it’s just not the time.”

Tam said truck orders typically undergo a seasonal downturn in May through August, but he predicted the industry may not lose as much traction this year.

Wood, of BB&T Capital Markets, said Class 8 orders will “likely remain steady” in the low- to mid-20,000 range for the next few months, though they may be slightly lower in the summer, before potentially ramping up in early fall as orders come in for 2014.

Analyst Justin Yagerman of Deutsche Bank said the strength in orders could have a negative effect on truckload pricing in 2013, “as it will likely yield net capacity additions despite a very old industry fleet.”