Major market hurdles persist for truck sellers

LAS VEGAS — For OEMs, maybe the worst isn’t over after all. Could new truck sales in 2010 actually be less inspiring than the massive sales crater left in 2009?

It depends of several factors, but it’s certainly possible, says Eric Starks, president of truck market analysts FTR Associates.

Speaking to truck makers and parts suppliers at the Heavy Duty Dialogue in Las Vegas yesterday, Starks indicated that if the economy stays true to bullish predictions of 5 percent growth by year’s end, there’s a good chance that sales remain flattish or show a very modest uptick in the latter half of the year.

But what is clearly seen as an acute pre-buy in October, (followed by a smaller boost in Dec. as OEMs’ filled up order books with the last of pre-2010 inventory), could have lingering negative effects well into 2010 if the general economy doesn’t improve as robustly as some optimists hope.

What order books look like going into the second quarter, after some of the apprehension over new, more expensive EPA-mandated engines begins to dissipate, "will end up telling us a lot," says Starks.

Still, by using the last major recession in the 1980’s as a model, Starks says that any bounceback resembling the rebound of 2004 and record-breaking, pre-buy peak of 2006 "is not at all realistic." 

Don’t expect any lofty new truck sales over
the next 12 months, market analysts agree.

For one thing — putting aside the weakness of freight-driving economic indicators — "burning through" the massive pool of those 2006 trucks is going to take a while.

And Starks is vehemently unconvinced of the traditional life cycle argument that most large carriers commonly turnover their fleet every four to five years. If it was ever true, it isn’t in this economy, which, coupled with new, unpredictable 2010 technology, has turned traditional trade-in cycles on their heads.

"It doesn’t matter how old a piece of equipment is, just how many miles are on it and what condition it’s in," says Starks. "People who normally buy new are out to get two-to-three year old equipment that fits their needs."

Jerry Moyes, founder of North America’s largest truckload carrier, Swift Transportation, and Pat Quinn of USXpress are two major fleet CEOs that can vouch for that.

In a previous discussion panel at the Dialogue, both said that although they’ll experiment with a handful of new 2010 trucks, they will actively push trade cycles out farther by maintaining equipment or refurbishing trailers and replacing aging power units with two or three-year old pre-owned trucks — something that, at least in Quinn’s case, hasn’t really been done before.

The fact that new trucks are better built and longer lasting, ironically, doesn’t help OEMs in this market, adds Stu MacKay, the outspoken and colorful number cruncher of Mackay & Company. 

On top of the overcapacity of trucks, utilization is at an all-time low, says MacKay. Right now it’s just a little over 82 percent, low enough on its own to keep a lid on significant new truck demand.

On the flip side, as is common when a lack of new truck sales is coupled by extended life cycles, things bode reasonably well for the parts and components aftermarket sector in the near term.

The high number of parked trucks in general is mitigating any lofty growth right away, says MacKay, but the heavy-duty aftermarket could see an 8 percent improvement by year’s end, peaking in 2011 before tailing off until 2014.

Even as carriers hold on to their main power units, "some of the major components from the big production years (2005-2006) are moving towards replacement," says MacKay.