April already was the worst month for Class 8 truck orders in a quarter-century. A late pullback of 10,000 bookings by one manufacturer dropped the month into negative territory with little improvement expected in May and no significant recovery until 2022.
That was the conclusion of industry experts Tuesday at the 13th annual Wolfe Research Global Transportation & Industrials Conference conducted online because of the coronavirus pandemic.
ACT Research lowered its estimates for heavy-duty trucks several times in March before settling on a 2020 prediction of 117,000 units. Prior to COVID-19 shutting down the global economy, ACT was expecting 2020 Class 8 production of 225,000 units, well below 2019’s record production of 345,000 trucks.
The current ACT production estimate for 2021 calls for 191,000 units because so many orders will be deferred.
“There are a lot of young trucks out there,” said Kenny Vieth, ACT president and senior analyst. “The private fleets are swimming in capacity.”
With practically no new truck production in April and May because of stay-at-home orders, bloated inventories fell by 11,900 units.
During April, the Class 8 backlog saw 10,000 units removed with the production orders being pushed beyond 12 months, the definition of a backlog. Coupling that push-out with April’s anemic 4,300-unit order volume, the case could be made that the effective order rate in April was negative 6,000, Vieth said.
As the pushed-out orders come back into the backlog, they won’t be recounted as new orders.
“Arguably, you could have made the case that instead of 2,800 cancellations, there should have been 12,800 cancellations,” Vieth said, adding that May to August typically is the industry’s weakest order period.
Daimler Trucks North America (DTNA), the industry leader in on-highway truck sales, tried to resume U.S. production earlier in May but supply chain issues prevented the restart, said Brian Cota, vice president of sales for the Freightliner brand. The lack of progress against COVID-19 in Mexico is keeping Daimler plants there shuttered.
“We’re waiting for the Mexican government to give the green light to go back to work,” Cota said. “The hope is with the supply chain that we can get things started again June 1.”
Lost production in March and April combined with an expected 30% drop in production in 2020 means DTNA production could fall more than 40% below 2019, Cota said.
Daimler has seen fewer order cancellations than it expected, but a significant number of orders scheduled for April delivery are being pushed out as far as August.
“I would expect [May] to be similar to April from an order intake perspective,” Cota said. “I think it’s a function of building confidence. We’re just not quite there yet. We’ve still got to get the country turned on.”
Sales to retail customers are showing small signs of improvement, said William “Rusty” Rush, CEO of Rush Enterprises, the nation’s largest network of new truck dealerships.
“In the last 10 days, there’s been some slight uptake,” he said. “I can look at miles driven for 100,000 trucks for the last four months by week and [see] how it’s slightly come back, 8% to 10%, But a week does not make a trend line. We’ll continue to see flickers.”
Rush said the longer-term effects of the pandemic, such as delinquencies and bankruptcies, are not yet visible.
“You don’t realize how many extensions and deferrals have been done on payments,” he said. “You might be in double-digit delinquencies right now if you didn’t have some of these extensions and deferrals across the board with financial institutions that have been going on with people in trouble.”
So far, late loan and lease payments are running 3% to 5%. Rush expected them to be 10% or higher. The number of financial institutions working behind the scenes to help people is unknown, he said.
“If we get a second wave of this thing and shut down again, look out,” Rush said. “There would be some tough decisions made.”