Things are beginning to look very bleak indeed. Back in April, this writer’s pessimism pertaining to Class 8 was predicated upon net orders of 20,000 units in March, and a then average annual run rate of 270,520. Given that most build forecasts sat to the north of 280,000 during the first quarter of the year, at the time, this seemed like a worrisome trend.
Six months on, reality is biting. At the recent ATA Convention, Daimler revised downwards its US sales forecasts for 2012, from a previous 219,000 units to 185,000 units. This points to bloated inventories of a type not seen since the heady days of the 2006 pre-buy, whilst the industry heads into a marketplace that intial Q3 earnings suggest is likely to be dire at best. While this is still better than the darkest days of 2007 and 2008, when stacked up against what was seen as reasonable expectation during Q1 of this year, we see a market that has managed to lose 100,000 units in 26 weeks. The sheer speed with which Class 8 demand has slowed is both remarkable and worrying.
At the recent ATA Convention, Daimler revised downwards its forecasts for 2012 to 185,000 units. While this is still better than the darkest days of 2007 and 2008, we see a market that has managed to lose 100,000 units in 26 weeks
While very few people are prepared to make a formal guess on next year’s Class 8 market, measuring fleet sentiment at ATA suggests that 2013 is unlikely to offer any relief from the gloom. Based on conversations with a number of sources, an estimated 70% of fleet procurement will be flat, with 30% reducing. That suggests that 185,000 units is now a good number and a target to be aimed at, rather than one that is 100,000 units off the expected pace as it was just six months ago. If the top of the curve in the North American Class 8 business is now south of 200,000 units, then, very clearly, a significant part of the industry’s Holy Writ needs – well – re-writing.
Last time it all came crashing down – in 2007 – the market was coming off a high of 284,000 units. At the end of that year, the industry described a 46% arc off the cliff, with 150,965 units sold. In 2008, things dipped yet further, to 133,473 units. And then came 2009, when, just for good measure, we dipped below 100,000 units for the first time since 1991. 2010 saw a slight uptick to 107,000 units, leading to last year’s 171,358 units. 2012 promised much, and yet it has delivered less.
Demand, clearly, has gone away. Next year, some well-known names on the supply side will be doing likewise
Numerous reasons have been put forwards for this lacklustre performance. Yes, an election is approaching; yes, a fiscal cliff is looming and yes, these events might reasonably be expected to restrain truck purchases. But, as we suggested back in April, the more difficult and far less palatable analysis is also far more succinct: the buyers aren’t there. They haven’t been there since 2007, and they’re not coming back. It’s no longer a case of hoping for a 300,000 unit year: 200,000 looks to be about as good as it’ll get.
2007 cleared out the downstream operator base. This time, it’s the turn of the suppliers. There are a number of well-documented operations – we need not speak openly of the afflicted – which are suffering as the market turns up. How will they cope when it turns down next year, as seems likely? Not well at all. A market peaking at 300,000 units can sustain an industry with a certain number of suppliers. Reduce that peak by one third, and you reduce the rate of sustenance. The brutal, inescapable logic of a marketplace is one that sees supply and demand working in some semblance of harmony. Demand, clearly, has gone away. Next year, some well-known names on the supply side will be doing likewise.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Oliver Dixon is Editor, World Truck Analysis
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