Heavy-Duty Truck Orders Plunge

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The Wall Street Journal  /  April 5, 2016

Dealer inventories of unsold heavy trucks are at their highest level since before the financial crisis as weak freight demand sidetracks new orders from trucking companies

Orders for new big rigs plunged and inventories of unsold trucks soared to their highest levels since just before the financial crisis, as uncertainty about future demand and a weak market for freight transportation weighed on truck manufacturers.

About 67,000 Class 8 trucks are sitting unsold on dealer lots, after sales in March dropped 37% from a year earlier to 16,000 vehicles. Inventories haven’t been this high since early 2007.

At present, there are too many trucks chasing too little freight.  

Companies that placed large orders in late 2014, only for customers to move less freight than expected last year, are reluctant to buy more vehicles now.

Last month, it was reported that spot market rates for dry vans fell 18% between February 2015 and February 2016, an indication of weak demand.

Fleets are being very cautious in the current uncertain economic environment. Freight has slowed due to the manufacturing recession, so they have sufficient trucks to meet current demand.

Aaron Tennant, owner of Simplex Leasing Inc., a trucking company in Jamestown, N.D., said that last June, anticipating market growth, he placed an order of 115 new Navistar International trucks to replace 75 trucks and expand his fleet to 245 vehicles. But that growth has not come.

“Once this order is complete, I’m probably not going to consider buying any new trucks until at least October or November,” he said. “It’s definitely coming from caution. The market has softened in the last year.”

Analysts say the backlog of Class 8 trucks appears to be about six months, and truck and truck component manufacturers like Paccar, Navistar and Meritor are likely to see further pressure on their share prices and earnings. They believe the companies most closely tied to the Class 8 vehicle production cycle will likely have a difficult time exceeding expectations this year.

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Class 8 orders continue falling

Fleet Owner  /  April 5, 2016

By contrast, medium-duty demand continues to rise.

Orders for Class 8 trucks continued to decline in March, according to preliminary data, while orders for medium-duty remained on a growth track.

North American Class 8 truck net orders fell for the third consecutive month to 15,800 units in March – the lowest level for Class 8 orders since September 2012. 

March orders were 12% below February and down 37% year-over-year, which is the weakest month of March in six years, and are expected to remain under 20,000 units for the next few months as the market bottoms out. 

The decline in Class 8 orders in March results from a weak freight rate environment, weakness in late-model used truck values, and excessive new vehicle stocks.

Fleets are being very cautious in the current uncertain economic environment, as freight has slowed due to a “manufacturing recession.”

Some fleets are also delaying replacing older units until conditions improve. There are very few dealer stock orders, since inventories are sufficient and OEM lead times are short. As a result, OEMs continue to reduce production rates in response to an expected 26% drop in build this year.

Inventories remain high and retail sales have moderated, so order rates should remain subdued in the short-term. Manufacturing is expected to improve soon and this is expected to increase freight levels and stabilize truck demand.

In the case of medium-duty truck demand, a decent jobs market and rising incomes continue to support discretionary spending and improved housing activity. For medium-duty trucks, the slow but steady rise in the order trend remained evident in March, with orders rising 4% against a tough year-over-year comparison.

Medium-duty order strength through the first quarter continues a period of meaningfully stronger orders which began last September.