NEW YORK — After a string of record months for 2006 class 8 orders, market forecasters are predicting sub-10,000 orders beginning in July.

So says the transportation division of market analysts Bear Stearns, which held a joint conference recently with A.C.T. Forecasting firm.

A North American pre-buy to avoid expensive, mandated 2007 technology fueled strong orders for the first four months of this year. But after hitting a peak in March of nearly 50,000 heavy truck units, orders in May fell to about 27,800 (down 35 percent from a average of 43,000 the first four months of 2006).

A.C.T, according to the report released after the conference, estimates that as of the end of April there were about 27,000 build slots still open in 2006.

While orders will likely decline below10,000 through September, ACT expects to see a small spike in the back half of the year as OEMs fill their build slots for 2007 trucks with 2006 engines.

Technically, the Environmental Protection Agency’s emissions rule is that noncompliant engines cannot be made after January 1, 2007. However, if a truck OEM has the engine in inventory on that date, the rules allow the non-compliant truck to be assembled.

Bear Stearns says industry contacts estimate there will be 30 to 45 days excess inventory of engines at year end — suggesting roughly 30,000 to 45,000 of potential orders in early 2007.

The higher cost and uncertainty of ULSD
is part of what triggered the 06 pre-buy

“Our sense is that OEMs may be holding on to these last production slots and will likely charge 2007 prices for these trucks. Once those few remaining slots are filled A.C.T looks for orders fall to the 10,000 15,000 range through the first half of 2007.”

A.C.T also estimates that the higher purchase price of the 2007 compliant trucks will cost the average carrier $0.02 to $0.025 per mile. The firm predicts that the total incremental cost (including lower residuals, fuel degradation, the higher cost of ULSD, and higher maintenance costs) of the 2007 Class 8 trucks to be US$16,400 to $33,800 on a present value basis.

“With roughly half of their profit at risk it’s easy to see why public TLs have reduced the average age of their fleets from roughly 28 months in 2002 to 17 months at year-end ’05,” says the report.

Looking forward, the toughest round of EPA rules yet — set to take affect in 2010 — will trigger a pre-buy spike in 2009 that will “likely dwarf the current peak.”

Not only will the engines be more expense still, but an entirely new emissions solution is being discussed (at this point all signs point to adopting Europe’s SCR approach), meaning many fears over unproven technology for the North American market will lead many carriers into avoiding 2010 equipment all together.

“It seems that one of the biggest dilemmas facing OEMs is how to efficiently manage cost structures for a 40 percent decline in production in 2007 while at the same time preparing for a 40 percent rise production in 2008 and 2009,” states Bear Stearns. “Our sense is that consensus expectations don’t fully reflect that amount of operating leverage in the Class 8 names and, more importantly, that operating leverage cuts both ways.”