’07 downturn to sink deeper than expected: Firm

NEW YORK — North American class 8 truck orders were 14,011 in March, down a whopping 73 percent from the height of the pre-buy during the same month last year.

According to New York-based transportation equipment analysts Bear Stearns, the majority of the remaining orders continue to be for export markets, which accounted for roughly 50 percent of total net new orders in January and February of 2007.

Meanwhile, class 5-7 orders were also down over 70 percent last month from the same period last year. However, arguably, medium-duty orders are a “purer” measure of economically-derived demand, given that there was a smaller pre-buy in the class, says Bear Stearns.

OEMs have not placed orders to signify a rebound
in 2007, one major supplier says.

The company spoke to a major Tier-1 commercial truck supplier about the current demand climate. The contact said while he expected a post-pre-buy downturn for the first part of 2007, the weakness exiting the first quarter is still surprising.

The industry supplier, says Bear Stearns has “become much more bearish on the much anticipated rebound in demand in the back half of the year.” Thus far, most OEMs have yet to place “any orders that would suggest a pick-up in demand” in the second-half of 2007.

In fact, customers have indicated truck buyers are asking to be moved back
farther in the backlog. “While this is certainly more agreeable than canceling an order,” says Bear Stearns, “our contact fears that as we get closer to the back-half of the year we may see cancellations rise and some of the orders slated to be built in the (third and fourth quarter) may actually never materialize.”

Accordingly, a truck dealer who rents and used trucks told the firm he too has recently become more concerned about the health of the heavy-duty market, because he looks to both rentals and used truck sales as leading indicators of overall truck demand.

Some of the dealer’s larger customers are just now beginning to “feel the pain of weaker freight economy. While he’s hoping for a second-half ’07 upturn, he has started making contingency plans should demand remain weaker and longer than first thought.

However, the skepticism within the industry hasn’t affected investments in OEM equipment. Bear Stearns believes that stock market is “pre-buying the pre-buy.” Thus, investors are disregarding economic weakness in trucking and buying shares on an “emissions cycle” by owning stocks early before the next major pre-buy in advance of tough 2010 EPA engine rules.