Truck manufacturing might ramp up 56 percent in 2011

November 21, 2010

North American commercial truck production may climb as much as 56 percent in 2011 as owners refresh the oldest U.S. fleet in at least 31 years, boosting sales at Paccar Inc. and partsmakers such as Columbus-based Cummins Inc.

Output of Class 8 trucks, the workhorses of interstate hauling, may reach as many as 235,000 units in the U.S., Canada and Mexico next year from an estimated 151,000 in 2010, said Kenny Vieth, partner at market forecaster ACT Research Co.

Rising freight rates and volumes are helping rekindle demand after the worst recession since the Great Depression. A 2006 production surge to a record 376,448 units before new U.S. emissions rules took effect helped create a glut heading into the economic slump, leaving some trucks parked for two years.

“My members are saying they desperately need to replace trucks,” said Bob Costello, chief economist for the American Trucking Associations.

U.S. trucks now average 6.7 years of age, about 11 months older than the historical average and the oldest in ACT data going back to 1979, according to the Columbus-based company. While that fleet has logged fewer miles than usual because of the drop in shipping, “no matter how we slice it, we still come up with an answer that it’s old,” Vieth said.

Class 8 truck orders for October rose 24 percent from September, the second-highest monthly total since April 2008, ACT said in a statement.

North American output in 2011 matching ACT’s forecast or Robert W. Baird & Co.’s projection of 230,000 units would add to evidence of a recovery in shipments and vehicle purchases. Typical replacement demand is about 220,000 trucks, said Kristine Kubacki, an Avondale Partners LLC analyst in St. Louis.

“The replacement cycle is kicking in,” said David Leiker, a Milwaukee-based analyst for Baird.

Daimler AG, the maker of Freightliner trucks, expects the “vast majority” of 2011 purchases to be replacement vehicles, said Mark Lampert, senior vice president of sales and marketing for the company’s North American truck unit.

That’s the case at San Mateo, Calif.-based Con-way Inc., the second-biggest publicly traded U.S. trucker after YRC Worldwide Inc.

“We intend to continue acquiring tractors for fleet replacement, not expansion, in 2011,” said Gary Frantz, a spokesman. The total will be “equal to or slightly more” than in 2010, when Con-way bought about 1,300 tractors for the unit that puts shipments from more than one customer on each trailer. That business has about 9,000 tractors now, Frantz said.

The 18-month recession that ended in June 2009 ravaged the shipping industry, helping drag YRC to a third straight annual loss and sending the ATA’s freight-tonnage index to a seven-year low in April 2009. Sales excluding financial services at Bellevue, Wash.-based Paccar plummeted 48 percent.

Volumes are rising again this year, with truck tonnage up for a 10th straight month in September on a year-over-year basis, according to data from Arlington, Va.-based ATA. 

Economists surveyed by Bloomberg in early November see U.S. gross domestic product expanding by 2.5 percent in 2011, compared with world growth of 4.2 percent.

FTR Associates, a trucking-industry forecaster based in Nashville, Ind., is less optimistic than ACT and Baird on Class 8 output in North America next year. Production probably will be 187,000 vehicles, said President Eric Starks, who added that shipping volumes remain below their 2006 peak.

As many as 500,000 trucks were idled during the recession, and about 150,000 remain parked, Starks said.

“Age itself is not a very useful tool to say when you have to replace equipment,” Starks said. “With such a deep recession, the dynamics have changed.”

Wear and tear is important because annual maintenance costs can more than double once a vehicle exceeds 600,000 miles, said Kubacki, the Avondale Partners analyst.

“Uncertainty about a recovery sidelined some purchasing decisions,” she said in an interview. 

Parts suppliers such as Cleveland-based Eaton Corp. and diesel-engine maker Cummins Inc. would join Paccar and Navistar in benefiting from increased truck sales. Revenue at Eaton’s truck unit plunged 35 percent to $1.46 billion in 2009. The drop at Cummins was 25 percent to $10.8 billion.

Commercial trucks will be a “strategic area of focus” for turbocharger maker BorgWarner Inc. as the government keeps ratcheting up mileage standards, CEO Tim Manganello said in a Nov. 9 investor conference. Truck manufacturers use turbochargers to boost fuel economy without sacrificing power.

Investors may have to wait until mid-2011 to see whether truck operators start buying vehicles to meet rising demand for shipments instead of just replacing aging tractors, said Lampert, the executive with Daimler Trucks North America LLC.

“If freight is strong through the first half of next year, I would not be surprised to see growth for the first time surface as an initiative for truck purchases,” he said.


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