N.A. Class 8 truck building boom beginning to soften

by John G. Smith

CHATHAM, Ont. – Anyone doubting that Class 8 truck sales are beginning to soften needs to look no further than the factory floor.

About 500 of the 2,200 workers at Navistar International’s plant in Chatham, Ont. were warned before Christmas about the possibility of layoffs that could come by March. (A final decision will come in mid-February.) And while Volvo was expanding its Dublin, Va.-based manufacturing facility in late 1999, 400 of 725 new hires were laid off in December as the company began to confirm dropping numbers.

The stocks of companies that deal exclusively in trucks have also felt the affect of a softening market. Some analysts downgraded Navistar and PACCAR stocks late last year after orders for Class 8 trucks fell to a three-year low.

Still, it’s not all doom and gloom for those who sell the proverbial iron, and for buyers it could mean everything from shorter waits for new purchases to better deals on selected varieties of used on-highway trucks.

“Our backlog (of truck orders) today is still bigger than normal,” confirms International spokesman Roy Wiley. The Chatham plant is still building 129 trucks per day.

But the downturn – which only comes after two years of record production – is real. And it’s going to continue.

“Order intakes have been falling since July, and in December, North American levels dropped to their lowest point in three years, marking about 11,000 (Class 8 trucks for the month),” says Volvo Trucks North America president Marc Gustafson, referring to the decline as “pretty rapid”.

Retail sales are 30 per cent under the rate of production, he adds. That means a growing number of trucks are sitting in dealer lots.

“Given the inventories that have built up, production will have to be adjusted in the first quarter,” he adds. Get used to it, Gustafson says of the new numbers. “It’s going to be more than a quarterly adjustment.”

It isn’t particularly welcome news for manufacturers whose primary concern has been building trucks as fast as their plants were capable.

“Go back last year before we moved to 31 a day,” Western Star’s Doug Shand adds of the production conditions in 1999. “We kept increasing our build rate (in Kelowna, B.C.) and losing market share because we couldn’t increase our production as fast as the market was growing.”

Some makers were still scrambling to fill 1998 orders in 1999.

For the buyers of new trucks, the new reality for truck sales could mean the end of year-long waits for some models. Depending on the spec’s that are requested, waits of 90 to 150 days are more likely in the current market, says Mack Trucks vice-president Paul Vikner.

How low?

But where are the numbers going to fall?

Most manufacturers are expecting dips of anywhere between 10 to 20 per cent in their Class 8 truck businesses as compared to last year, and that’s hardly a harbinger of doom.

Navistar is forecasting 245,000 Class 8 truck sales in North America during 2000, compared to the 286,000 in 1999.

Volvo has a projection on the books for 230,000 units this year, although the number is being re-drafted, Gustafson says.

Says Vikner, “We think it will be the second best year in history.”

Even if sales don’t reach that level, they’re still expected to be numbers that were pure fantasy only five years ago. And other Canadian truck plants are immune from the softening market so far.

“We’re building 31 trucks a day here, and anticipate continuing to build 31 trucks a day,” Shand says of Western Star’s Kelowna, B.C. facility. And the company continues with plans to ramp up production at a new facility in North Charleston, S.C.

But Western Star isn’t oblivious to the softening market.

“We’re seeing a softening too,” Shand says. “The truck manufacturers were producing too many trucks, resulting with increasing inventories and a softening in used truck values.”

That’s particularly true with some late-model trucks, he says, and other truck makers agree. (Although, everyone insists that they aren’t facing problems with their own used truck inventories. But the other guys …)

The used market

“The (truck) values are certainly dropping,” says Dennis Sheehan, used truck manager at Sheehan’s Truck Centre in Burlington, Ont. “The market is flooded with used trucks … and it won’t get any better for the next year or two.”

The biggest swing in prices has been in low-powered on-highway trucks, as fleets sell them off, he says. But the same models with larger power continue to hold their values, he adds.

“There are some fleets that might change the cycle of ownership,” Vikner says of the current market, adding that equipment owners might hold on to newer-model trucks for another year with hopes of a better trade-in value. “The used truck glut right now is not going to significantly change most of the buying habits.”

Overall, it means that truck makers are looking more seriously at the way they deal in used trucks. After all, those built during the times of booming sales will eventually come back for a second life with a new buyer.

With its recently released Vision and hopes for a bigger share of the on-highway truck market, Mack plans to become more aggressive with a used truck network, including the opening of new company-owned sites, such as one to open this year in the Toronto area, Vikner says.

For its part, Freightliner is equipped for the modern used truck market with the introduction of the company’s SelecTruck used truck centres, says Frank Oliveira, who oversees the Canadian operations. One or two more Canadian sites are expected to open in the next 24 months.

“We’re moving a lot of equipment.”

But to sell trucks in today’s markets, a late-model truck will have to be coupled with services such as warranties and complete inspections, he says. In essence, the used truck purchase will become more like the new truck buying experience.

Medium market

Sterling Corp. spokesman Jim McNamara says the company’s plant in St. Thomas, Ont. continues to build 111 trucks per day over three shifts. “We have no plans to reduce our output and no plans or reason to consider any changes in employment at St. Thomas,” he adds.

But that production schedule will be helped in part by the addition of the Acterra medium-duty truck line that goes into full production by the end of March.

PACCAR, too, continues to ramp up production at its recently opened medium-duty truck plant in Ste-Therese, Que.

“Our plan is still to ramp up as before,” says PACCAR president David Hovind, of the plant now building 14 to 15 trucks per day. And it will be building 20 per day by this year.

While Hovind thinks the medium-duty market will soften a little, he says his company plans to compensate with a growth in market share.

Several manufacturers are looking at E-Commerce as the next true business opportunity for selling trucks, and it’s expected to have a particular effect on calls for medium-duty varieties.

“You can order a book from amazon.com, but that can’t come by virtual truck,” quips Wiley. And says Hovind, “It’s a different market than six years ago.”

While International has traditionally been strong in the medium-duty marketplace, that will be little help to Chatham workers since such trucks are made in Springfield, Ohio.

“We concur that, in this new economy that we’re in, with E-commerce, the medium-duty truck business will benefit from that,” Gustafson says.

Although a deal with Mitsubishi will mean a co-developed truck in Europe and Asia, he won’t comment on whether Volvo has plans to introduce a new medium-duty truck in North America.

Mack, too, is eyeing the medium-duty market, and the ideas may come from Europe, where Renault will introduce its new cabover this month (February).

Vikner says the Allantown, Pa. truck maker is “close” to deciding which elements it might bring from Europe to make a North American truck. n

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