’07 Pain is Aftermarket Gain: Economist

LAS VEGAS — While most forecasters are predicting a moderate softening in the trucking industry post-’07, one respected U.S. transportation economist is warning that the stumble may bring a harder landing than first thought.

The near consensus among manufacturers and suppliers is a 20 to 30 percent slip in new truck sales, as North American truckers pre-buy tractors or sit on existing equipment to avoid the pitfalls associated with new EPA mandated engines after Jan. 1, 2007 — fuel economy degradation; a possible short supply of required ultra-low sulfur diesel fuel; and a sticker price of $7,000 to $10,000 more than today’s truck models.

MacKay & Co. founder Stu MacKay — whose company measures industry growth through a unique “truckable economic activity” indicator to specifically dissect the trends of trucking apart from the general economy and GDP — predicts that post ’07 sales could drop by as much as 35 percent or higher.

The road is paved gold for the aftermarket over
the better part of the next five years: Analyst

Speaking to suppliers, OEMs, and distributors on the opening day of Heavy Duty Aftermarket Week in Las Vegas, MacKay said worldwide energy turmoil; a natural economic slump; plus the high costs, reliability issues, and ULSD problems with new engines may have more severe impact next year than first thought.

“Murphy is alive and well. If something can go wrong, it will go wrong,” he said. “I don’ think we’re on the brink of a (recession), but it’s definitely something we need to keep an eye on beyond 2006.”

However, what may lead to concerns for OEs, could spell opportunity for the aftermarket, MacKay says. The $8.1 billion aftermarket feeds off the number of trucks in utilization, which currently is at 2.6 million in North America.

Power generation makes up 33 percent of the aftermarket; while powertrain is 16 percent; undercarriage 26 percent, electrical 10 percent, and other 15 percent.

The time is ripe for a boost in the aftermarket, which in the early 1990s reacted to three or four-year cycles, says MacKay. But now that technology has made equipment more durable and reliable, component, engine, and drivetrain life cycles have extended between five to seven years, and in some cases beyond that.

“We’ve pushed parts demand back down into the timezone,” says McKay.

The good news is that the wave of new trucks OEMs flooded into the market in 1999 and 2000, have started coming into the garage for their first major replacements. Furthermore, the trucks snatched up as part of the massive pre-buy in 2002 will follow close behind in the next few years-landing right on the doorstep of EPA’s most stringent rules yet, in 2010.

And while the deteriorating highway infrastructure in North America may beat up on truckers’ backs, the poor quality of highways does result in more vehicle repairs and aftermarket growth.

The Road Information program (TRIP) in the U.S. estimates that America’s roads cost vehicle owners an additional $52 billion (all vehicles) in repairs.