The North American commercial vehicle
market has been volatile during
the past few years with factors such
as a strong economy and the U.S. 2007 prebuy,
which led to unsustainably high sales in
2005 and 2006. Commercial vehicle truck
sales took a double hit in 2007 and 2008 due
to a hangover from the '07 pre-buy and an
economy that has taken severe hits due to
the mortgage meltdown, along with rising
commodity prices, most notably continuing
fuel price increases. The much-anticipated
U.S. 2010 pre-buy may be tempered with a
softer-than-expected economy heading into
2009, in which fleets may simply replace their
trucks as market conditions dictate, rather
than enter into a pre-buy mode to beat the
2010 deadline.
With the United States economy bordering
on recession, coupled with a truck pre-buy in
2006, the stage is set for another poor year
of medium and heavy truck sales in North
America. Commercial vehicle production in
2008 is only forecast to increase by 10%
over a dismal 2007.
Due to a strong economy, and the pre-buy ahead of the U.S. '07 emission regulations, truck fleets were extremely young a year ago with an average fleet age of slightly less than four years, compared to a target age of five years. Based on our quarterly North American Truck Tracker survey, the average fleet age increased to 4.2 years in the fourth quarter of 2007 and is currently at 6.5 years. This trend should level off at the end of the year and begin declining in the first quarter of 2009. This will be due to an improving economy and an "anticipated" pre-buy ahead of the U.S. 2010 emission regulations.
Fleets have also become less optimistic on their plans to increase their overall fleet size. In the fourth quarter of 2007, fleets intended to increase their number of vehicles by 1.2%. Currently, they are planning to reduce their numbers slightly, primarily in the owner-operator ranks. A number of owner-operators with fewer than 20 trucks claim they will likely go out of business by the end of the year. A number of challenges lay ahead for truckers through the remainder of the year, most notably the price of fuel and the soft economy. Two-thirds of the fleets in our North American Truck Tracker survey claim the price of fuel is a significant issue going forward, while 17% cite the economy and low freight rates as a significant concern. In 2006, driver retention was the leading issue facing fleets, but now only 3% of the fleets cite this as an issue.
Truck dealers are also facing significant challenges this year. One of the challenges is reducing the inventory age for new trucks on their lots. While the dealers are not necessarily carrying a lot of inventory, they are having trouble selling what they have, which indicates not having the right inventory to offer. The usedtruck market remains tight with inventories turning rather quickly and dealers having problems finding quality used trucks to sell. While truck dealers are forecasting negative sales in Q3 2008, their forecasts are less pessimistic than in the previous two quarters. The dealers are forecasting a 1.2% decline in sales in Q3, compared to a forecasted 8.9% decline in Q1 and a forecasted 8% decline in Q2. Thirty-two percent of the dealers cited high fuel prices as a significant challenge to their business in 2008, while more than 18% cited the soft economy as a significant challenge. Having the right inventory and inventory levels were also significant concerns.
In general, the U.S. market does appear to be bottoming out after the last 18 months and is on its way to a gradual recovery starting later this year and improving through 2010. While real GDP growth is expected to finish the year at 1.4%, the third and fourth quarters are expected to grow at 1.7% and 1.8%, respectively. Real GDP is forecast to rise to 2.4% in 2009 and 3% in 2010 due to an economic recovery and strong foreign demand for U.S. goods.
Chris Fisher can be reached via email at cfisher@powersys.com.
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