As the economy goes, so do heavy truck orders: Analyst

NEW YORK — Preliminary numbers for December Class 8 orders in North America are modestly lower than expected now that last year’s “pre-buy” is all but over, say market analysts Bear Stearns of New York.

Class 8 net new orders for the last month of ’06 were 17,700 (vs. the firm’s 18-20,000 forecast), which is down 54 percent y/y.

Class 8 monthly net new orders to
go lower, stay down longer

The firm suggests orders was driven partly by exports (again) but this time also from a Freightliner dealer stocking program that ended in early January. Under this program, a dealer that orders two trucks receives a $4,500 net promotion credit, a $2,900 retail credit, plus flooring interest reimbursement for up to 90 days, to help offset new model introductory expenses.

“This was the first incentive activity that we’ve picked up on for 2007 trucks — although we generally expect these types of sales promotions to increase industry-wide during the first half of 2007.”

With the EPA’s 2007 diesel emissions standard now in effect, the firm estimates that there are roughly 50,000 pre-2007 engines currently available in the supply chain. By way of background, technically the EPA’s rule is that non-compliant engines cannot be made after January 1, 2007. However, if a truck OEM has the engine in inventory on that date, the rules allow the non-compliant truck to be assembled.

“However … our best sense is that, with Class 8 orders likely to remain under pressure into mid-2007, it’ll be increasingly difficult for the Class 8 names to outperform — particularly if over-the-road freight fundamentals continue to deteriorate.”

Traditionally, points out Bear Stearns, heavy truck demand is highly sensitive to the economy. “Layer on a substantial pull-forward in demand from the pre-buy, and a slowdown in either freight or the economy would likely be a “double whammy” for Class 8.

“We continue to believe that the Class 8 monthly net new orders will go lower, and stay down longer, than what’s reflected in general market expectations.”

Meanwhile, medium duty net orders were the worst in almost a decade. Class 5-7 new orders for December were about 10,000 (vs. 14k-16k forecast), down 54 percent y/y and down 25 percent from November 2006. “There’s currently four months’ inventory on hand — also the worst in a decade.”