TORONTO, Ont. – It won’t be business as usual as vehicle manufacturers ramp up production following the economic lockdowns connected to Covid-19.
Emerging demands will range from new hygiene procedures in the workplace, to the contact tracing needed to identify anyone who employees interacted with if someone is exposed to the virus.
“Folks are spending an incredible amount on cleaning and sanitizing right now,” ACT Research vice-president Steve Tam said on Wednesday, during a webinar hosted by the Heavy Duty Manufacturers Association (HDMA).
The challenges won’t end there.
“How do you handle shift times?” Tam said as an example, referring to options such as staggering shifts or bringing employees back in waves. Sales, distribution and service activities are expected to become increasingly virtual as well, both because of public health activities and budget restrictions.
While industry manufacturers appear ready to restart their activities, surveyed HDMA members continue to believe there’s a significant risk for a second wave of Covid-19, said Richard Anderson, director – market research and analysis at HDMA.
For now, the vast majority have completed key steps for restarting, including social distancing at facility entrances; social distancing for meetings; the acquisition, storage and distribution of PPE; and staffing under maximum-occupancy constraints.
Almost half of surveyed members believe Covid-19 will lead to “moderate” long-term structural changes in the workplace, too. Another 28% expect a larger structural impact than that.
While the related supply chain is currently “pretty under-stressed”, with limited delays associated with inbound and outbound shipments, the flow of goods could shift depending on how the economy reopens, he added. A sudden opening could lead to “big blockages” that would need to be overcome.
Manufacturing the equipment is only part of the equation, of course. Buying habits will be influenced by any number of factors. Tax breaks, interest deductibles, and cash-for-clunker programs will all play a role in customer “means and motivation”, Tam said.
As the economy begins to restart, after being essentially shut down in April, there is still plenty of uncertainty around the speed of the recovery. Unknowns here range from the timing of a vaccine to a reheating trade war with China, Tam said.
Lower truck production
Truck manufacturing activity was already declining earlier this year, before the world closed its doors.
Where 345,000 Class 8 trucks were built for North America in 2019, ACT Research predicts the total will plunge to 117,000 units this year, rising to 189,000 in 2021 and 286,000 units in 2022. Drops have been seen in the Class 5-7 build, too. The 281,000 trucks built in these classes in 2019 is expected to drop to 125,000 in 2020, rising to 205,000 in 2021 and 269,000 in 2022.
Things don’t seem much better when it comes to trailers. Compared to the 333,000 manufactured in the U.S. in 2019, ACT Research predicts 149,000 in 2020, 199,000 in 2021, and 253,000 in 2022.
Recently surveyed HDMA members in the U.S. and Canada say their commercial vehicle business plans will likely be down 50% in the second quarter, and 40% in the third quarter of this year. Compared to the same periods in 2019, those plans are down a respective 38% and 34%. They don’t expect sales to hit positive territory until the fourth quarter of the year.
Fleets face challenges of their own, such as the increasing struggles to find backhauls. And that will play a role in the hunger for equipment.
“Customers are not clamoring for equipment right now,” Tam said. “We have too many trucks and there’s just not enough freight.” Capacity isn’t expect to level off until the latter half of 2020.
Economic bright spots
There are a few bright spots, though. Final-mile activities are strong as consumers shift more of their spending to e-commerce. Landscapers also represent unseasonably good growth. “There are bright spots throughout every industry,” he said. “You have to find the conditions to find the market that’s doing well.”
One of the things that worries him is that manufacturers might ramp up production before the orders are secured, adding to the inventory already available on dealer lots. Order intakes haven’t been this low since September 1995, when the industry recorded negative net orders for a couple of months.
As for the orders that have been placed, OEMs appear to be flexible when it comes to cancelation policies, Tam said. (“When carriers experience tough economic times … the last thing you want to do is kick them when they’re down.”) Buyers also tend to renegotiate deliveries rather than canceling them outright in the name of locking in pricing. For now, OEMs are honoring those commitments, although the deals might be rewritten if things are pushed beyond the current model year, he said.
Used truck sales have held relatively steady, boosted in part by small operators who looked to tap into the temporary surge in freight activity this March, although the value of the equipment has been dropping, Tam said. It’s a buyer’s market, with a lot of high-quality and gently used equipment available if it’s needed.
As for the business trucking operations conduct, plunging spot rates are expected to increase the downward pressure on contract rates, he said.
In the meantime, one of the greatest challenges to restarting manufacturing activities will involve the accuracy of production and demand forecasts, and business cash flows. There were concerns about the liquidity of smaller customers before the pandemic, Anderson said. Now the worry is almost universal. “We can only do what we know to do,” he said, referring to the forecasts. “If we don’t have a target to hit, we can’t hit it.”
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