Considering the current economic climate perhaps it should not have been a surprise, but I must admit to being shocked about Daimler’s announcement today that it’s killing the Sterling brand. As of March, the company will be shutting down its Sterling Truck factory in St. Thomas, Ont. a move which will affect a total of 2,300 workers. Daimler Trucks North America will also reduce its salaried staff by about 1,200 positions, with more than half directly related to the Sterling brand.
Wasn’t it just this summer that Sterling Trucks announced it’s re-entering the sleeper market, with the introduction of a mid-sized integrated sleeper cab, dubbed the NightShift?
Was this a last-minute decision brought on by recent events or something that has been in the works for some time? For North American truckers devoted to the Sterling brand it’s hard to decipher what exactly provoked the decision and Daimler’s official line on the matter is not much help. In fact I’m left with more questions than answers.
Daimler blamed the decision on “continuing depressed demand across the industry and structural changes in the company’s core markets.” According to Andreas Renschler, the Daimler AG board member responsible for Daimler Trucks, US truck market conditions “have changed dramatically” and the move was necessary “to get Daimler Trucks North America back in fighting shape.” The anticipated pre-buy of heavy-duty trucks expected for 2008 and 2009 in the US is also not likely to happen, at least nowhere to the degree truck OEs were hoping.
We recently wrote about why the pre-buy is going to be a bust in Canada as well. Class 8 truck sales this year (up to August) are tracking about 1,100 units behind last year’s less than stellar figures and are following a decelerating trend. Another way to gauge potential truck sales for next year is to examine how many trucks are due for replacement. Canadian trucks carry heavier weights and travel longer distances so we prefer to employ a 7-year replacement cycle for our projections rather than the 9-year replacement cycle used by analysts in the US. (A truck may go through more than one owner during those 7 years.) Based on the 7-year replacement cycle there are 18,361 trucks up for renewal in 2009, 20,289 in 2010 and 22,490 in 2011. How many of the replacements scheduled for 2010 and 2011 would be pulled into 2009 as part of another pre-buy? During the previous two pre-buys about a third of motor carriers and up to a fifth of owner/operators opted for a pre-buy strategy. However, we felt the low base number of trucks due for replacement in 2009, combined with lingering concerns over the economy would prevent 2009 sales from getting anywhere close to the record set in 2006.
Daimler’s Renschler told the media “we can’t wait…We have to act now.”
So that leads me to think it was the recent downturn and slumping projections for the near future that spelled the end for Sterling.
But in a company release, Daimler also pointed out that Sterling, launched in 1998 after the purchase of the Ford line of trucks, had only managed to achieve one-fourth of the Freightliner nameplate’s market penetration in the US despite ongoing improvement initiatives and product launches. Sales of Sterling vehicles in the US fell from 12,955 in the first nine months of 2007 to 9,053 in the first nine months of 2008, according to WardsAuto.com.
Sterling models were also suffering from substantial overlap with offerings in the Freightliner Trucks product line.
That leads me to believe the decision was based on some long-term issues with the Sterling brand. But then why go through with the new product launch this summer? And why allow the overlap of offerings with sister company Freightliner to begin with? Surely over the course of the past decade there was ample time to address such issues?
I also wonder how Daimler felt about Sterling’s performance in the Canadian market place. Sterling had sold 1,446 Class 8 trucks to August of this year, compared to 1,827 the previous year, according to the Canadian Motor Vehicle Association. It enjoyed an 8.8% market share to that point, which is more than a 2 percentage point decline from the 10.4% slice of the market it commanded at the same time a year ago but also an improvement from the 7.5% market share it posted by the end of 2007. Both of the other Daimler brands – Freightliner and Western Star – are also down in market share as of August compared to the same time last year. Freightliner has dipped to 18.6% market share compared to 19.4% the previous year while Western Star’s slice of the market has dropped to 5.1% from 7.7%.
So all the Daimler brands are facing market share challenges while both Western Star and rival Mack have a smaller slice of the Canadian market pie that Sterling did. And an almost 9% share of the Canadian market is nothing to sneeze at. Is the Sterling brand in Canada simply a victim of more pressing troubles in the US?
I do believe that Sterling with its emphasis on vocational markets had won a loyal following in Canada. The next question today’s decision brings to the fore is if that following was won at the expense of the kind of profit margins Daimler found acceptable, particularly during a time of rising parts and materials costs.
Sterling sold 2,496 Class 8 trucks into the Canadian market last year and 2,915 in 2006. Some of the Sterling brand products will now be added to Daimler’s Freightliner and Western Star truck lines. Will those moves be sufficient to keep Sterling owners in the Daimler family or will some other OEs reap the benefits of Sterling’s demise?
Just a few more questions that remain unanswered about the decision to axe the Sterling brand.