As Q1 data continues to roll in from the North American trucking industry, so an interesting and divergent picture is painted. The apparent dichotomy between Class 8 production and Class 8 retail sales does not seem to be narrowing.
Paccar sees its overall production rising sequentially by 5-10% through the second half of 2013, with two-thirds of that increase being implemented in the United States; it is still guiding to US and Canadian Class 8 retail sales of between 210-240,000 for CY2013. During the Paccar earnings call, Chief Executive Mark Pigott was at pains to point out that “…we only produce what we have orders for. So I never really think of it any other way. So we vary our production levels to reflect incoming order rates.”
The apparent dichotomy between Class 8 production and Class 8 retail sales does not seem to be narrowing
At the risk of being perhaps over-simplistic in interpreting his words, this suggests a capacity increase to meet growing orders. If so, this rather sits at odds with Daimler’s now newly pessimistic view of the prospects for the NAFTA HD market, a view that sees a 5% contraction year-over-year. As noted at MATS a few weeks ago, such divergence of opinion is uncommon, and points to a continuing lack of visibility within the marketplace.
But supplier comments can be contrasted with those made by the publicly held fleets that are also reporting Q1 earnings at present. These do not paint a particularly wholesome picture. Werner Enterprises posted a shocker, providing considerable reason to question the health of the trading environment at present, given costs per company mile (excluding fuel) rose by 7.6% year-on-year, while rate per total mile rose only 1.3% year-on-year. Werner missed both on top and bottom line, and, while we can balance this out with Swift, which posted better than expected figures for its first quarter, Swift’s management pointed to softer trends both in terms of pricing and freight demand, and seems to indicate that it will not be growing its fleet without significant improvements within the economy.
If there is to be a production increase, to where is the increased production destined?
This would suggest that demand for trucks through Q2 and indeed the rest of the year is a far from guaranteed positive. And with the major fleets tending towards ordering during the first half of the year, this cannot augur too well for the second half. Further evidence that the fleets are winding back Capex comes from trailer sales data, which, for March were plain miserable, with dry van net orders down 12.7% year-on-year and overall trailer orders down 14.3% on the same measure.
So if there is to be a production increase, to where is the increased production destined? It doesn’t feel as if the big fleets have much of an appetite right now, and there appears to be increasing reason to suspect that if we are waiting for a small fleet procurement revival, we’re waiting for something that isn’t going to happen. Maybe this is increased production predicated more on hope than reality; if it is, parking space within the dealer network may prove to be the only real supply constraint through the rest of the year.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Oliver Dixon is Principal at West End Companies, www.westendco.com.
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