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Here’s why truck manufacturers’ current order discipline won’t last

Vertical integration demands production for engines, transmissions and parts

Manufacturer discipline in taking Class 8 truck orders is unlikely to hold for a long time. (Photo: Jim Allen/FreightWaves)

Order-taking discipline by truck manufacturers continued in June, but don’t expect it to become permanent. OEMs depend on making engines, transmissions and aftermarket parts as well as new trucks..

“No one ever got rewarded for not selling trucks,” Kenny Vieth, ACT Research president, told FreightWaves on Wednesday. “Sales have historically been a battle for market share. If I’m vertically integrated, I’m not just selling a truck. I’m selling an engine and a transmission.”

New truck builds are constrained today, But manufacturers know the so-called everything shortage won’t last forever.

Those constraints persisted in June. OEMs preliminarily reported 15,000 to 15,500 Class 8 orders. FTR Transportation Intelligence said the industry has booked 260,000 orders on a rolling 12-month basis. 

Counting seasonal adjustment, ACT pegged orders at 18,300, consistent with January through May seasonally adjusted orders.

Demand for new trucks persists despite unknowns

The unknowns include Russia’s war in Ukraine, China’s COVID lockdowns, rising interest rates and a possible economic recession. 

“Considering Class 8 backlogs stretch into 2023, that there is still no clear visibility on the easing of all things shortage, and the increasing market jitters about an impending recession, June’s net orders were quite solid,” said Eric Crawford, ACT’s vice president and senior analyst. 

OEMs indicated some optimism about improved future supply chain performance, said Charles Roth, FTR analyst-commercial vehicles. 

“The current order volume still understates the tremendous demand for new trucks,” he said.

That pent-up demand leads Vieth to project a shallower trough when orders slow in 2024. Enthusiastic ordering by fleets marks every cycle until freight demand slows. Canceled orderr leave the market awash in new trucks.

“What’s different this time is the freight cycle is rolling over and we still have pent-up demand,” Vieth said. “Typically, we would be seeing a very big drop [in orders] in 2023 and into 2024.”

The demand has cooled somewhat. In January, when ACT was projecting 4% or greater gross domestic product (GDP) growth, the pent-up demand amounted to 100,000 units. With a revised GDP of 1.6% for the year, ACT pegs that demand at 60,000 to 65,000 trucks.

Emissions rules for new trucks create a pre-buy condition

New emissions regulations take effect n California in 2024. Pre-buys next year avoid the hefty expense associated with trucks built after Jan. 1, 2024. ACT is revising downward its estimate for pre-buys from roughly 20% of purchases to about 10%. Only Oregon and Massachusetts are expected to follow California’s new rules for 2024.

Pennsylvania, Maine, New Jersey and Washington, D.C., likely will follow California’s new rule on lower nitrogen oxide emissions a year later, which could smooth out the pre-buy and make it easier for manufacturers to absorb the extra orders.

When volatile commodity prices and spot shortages of parts and components ease, Vieth predicts the OEMs’ newfound discipline surrounding order intake will disappear.

“To maximize profitability and keep my long-term flow of aftermarket parts flowing, I need to sell trucks,” Vieth said of the manufacturers. “I am not of the mind that we have entered this new age of discipline.”

Numbers of drivers and used trucks rising 

As of June, OEMs have a large number of fleet commitments for 2023, Roth said. “They are delaying entering these orders until they know how many they will be able to build each month.”

The industry backlog-to-build ratio stood at about 10 months in May, the latest month for which data is available. 

“The industry can take 18,000 orders and build north of 25,000 trucks a month for a long time before a shrinking backlog becomes a concern,” Vieth said.

The truck population on the road is aging. Used truck prices are starting to fall — especially for older models — but they are still about double what they were a year ago. The industry added a record number of drivers at for-hire fleets in the past two months, according to the Bureau of Labor Statistics.

The rise in for-hire employment coincided with owner-operators who hoped to take advantage of record-high freight rates surrendering their authorities.

“They bought very expensive capacity at a time when freight rates had been on a four- or five-month downturn,” Vieth said. “To the extent little guys are starting to fall out of the market, that is the result of being a high-operating cost provider in a market in which revenues are declining.”

May Class 8 truck orders slide seasonally and build slots evaporate

Chip shortage fears chill Class 8 truck orders in April  

Trucking jobs climb to ‘an incredibly strong number’ in May

Click for more FreightWaves articles by Alan Adler.


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Alan Adler

Alan Adler is an award-winning journalist who worked for The Associated Press and the Detroit Free Press. He also spent two decades in domestic and international media relations and executive communications with General Motors.