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OUTLOOK 2001: Market correction

The shrinking of North American truck sales is a trend likely to continue in even greater fashion next year, according to Jim Hebe, president of Freightliner LLC, the continent's market share leader i...


The shrinking of North American truck sales is a trend likely to continue in even greater fashion next year, according to Jim Hebe, president of Freightliner LLC, the continent’s market share leader in the Class 8 market.

“Is this the end of the truck manufacturing boom of the 1990s? It probably is. Were these high levels of production and sales sustainable? No, they weren’t. The laws of supply and demand have not been nullified in the New Economy,” Hebe told trade press at the Great American Trucking show, adding that some competitors were “absolutely sacrificing their futures just to have any trace of volume today.”

Hebe predicted sales of 28,000 Class 8 trucks for Canada this year, down 9.5 per cent from 1999, which was a record year. Sales in the U.S. should come in at 205,000, a 22 per cent drop from 1999’s watermark of 262,316 Class 8 sales. Mexico, meanwhile, is predicted to increase its Class 8 sales this year to about 18,300. In the combined NAFTA market, that adds up to 252,140 vehicles, down 18.5 percent from 1999’s all-time record.

Class 8 sales are expected to take an even more significant dip in 2001 with the Canadian market shrinking to 19,000, the U.S. market dropping 21 percent from its 2000 total to 162,000 units, while Mexico hits 15,300 units. The NAFTA market, overall, is forecast to be down 21.8 percent to 197,100.

The news is no better in the medium-duty market, which is slower to react to economic factors and is more stable year-to-year. In 2000, Hebe predicts a U.S. Class 6/7 market of 184,000, up 2.7 percent from 1999 but expects Canada’s Class 6/7 market to hit 7,700 trucks sold, down from 1999. Mexico Class 6/7 will be down about seven percent, he predicts.

In 2001, Hebe projected a fairly significant downturn in Class 6/7. He sees a U.S. market of 154,000 trucks, a Canadian market of about 7,000, and a Mexico market of about 7,300.

“We are struggling with some of the most difficult market conditions we have seen in years. Not too long ago, our biggest concern was production – how do we build more trucks? Today, it’s how to sell them,” Hebe said. “…When put in historical perspective, 2001 even with its reduced number of heavy trucks sold will be by all historical standards a respectable year, but it is very different than what we have become accustomed.”

There are several factors at play in bringing about the downturn.

“As an industry, we built too many Class 8 trucks in 1999 – 20,000 to 40,000. Is that a problem? Yes. But only short-term. It will all level itself out,” Hebe said. He also pointed to the dramatic increase in fuel prices which has challenged the financial strength of owner operators; rising interest rates; plummeting used truck values which are prompting fleets and owner/operators to hold on to their equipment longer; an easing of freight volumes in the long haul sector as railways start to become more competitive; and the continuing scarcity of drivers that has left some carriers parking their trucks.

“In the history of truck manufacturing on this continent, all of these factors individually or in combination have at times buffeted this industry, but rarely have they all hit at once, as they are doing now,” Hebe said. “…Is there light at the end of the tunnel? Yes. For one, most economic indicators are still positive. Secondly, the excess supply of trucks already is beginning to work itself out.”

But he added that for truck sales to pick up a number of factors have to come into play, including higher freight rates.

“Our customers must make more money. It’s ridiculous that freight rates today are at levels below what they were some 10 years ago,” he said adding that rates should be 20 per cent higher than they are.

“A little inflation never hurt anybody. It covers up a lot of sins,” Hebe said. “Why should the whole trucking industry be ashamed to make a little money. Look at what it has done to reduce costs and increase productivity. But you also have to look at what that will do to the competition with rail. Will rail become the more competitive mode for moving long haul freight?”

Other factors that can create a resurgence, according to Hebe, include higher resale and residual values to accommodate rapid trade cycles; used truck sales must replace new truck sales to first-time owner/ operators; finance companies must increase advance rates on used trucks; dealers must play a larger role in the disposition of repossessed trucks; and the practice of taking large volumes of used trucks and repossessed trucks to auctions must stop.

Hebe predicted that the current downward trend will last about a year if the economy remains strong; longer if it heads into a recession. But he said carriers will probably adopt a different attitude with the next upturn. He said carriers should have realized that part of the reason their long-haul business expanded so rapidly was because the railways fell apart and that it would only be a matter of time before the railways turned themselves around.

Class 8 truck sales

If the Canadian market drops to 19,000 Class 8 trucks sold next year, as Freightliner’s president predicts, it will be its worst performance since 1993.

estimated
estimated
1990 14,011
1991 8,049
1992 11,965
1993 18,322
1994 24,476
1995 26,780
1996 21,394
1997 27,223
1998 29,094
1999 30,984
2000 28,000
2001 19,000

Source: Canadian Vehicle Manufacturers Association and Freightliner estimates.


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