Summary
Improving freight levels should help truckers, but not so much the truck manufacturers - unless you have a good parts and service network. Some call it a double dip slowdown or better yet - déjà vu all over again.
Analysis
My friend and fellow-Hoosier Eric Starks of FTR Associates gets it right in assessing a slightly improving freight demand marketplace against an equipment population that is underutilized, parked and being kept longer. Couple all this with the mini-prebuy in front of the 2010 engine emissions changes with all the new engine stuff, and we will have a slower year again for truck orders for Daimler Freightliner, Navistar, Paccar Inc’s Peterbilt / Kenworth brands and Volvo Truck.
While new truck build will continue well for a few more months with the pre-2010 engines (into the 2nd quarter this year), truck “orders” have fallen off to around 6,200 trucks for January - rivaling mid-2002 levels. Truck build and deliveries will continue depressed afterward and through this freight season, also affected by poor truck financing, increased truck prices, a lack of financing and apprehension about 2010 engines (and other reasons).
While we are all awaiting the upswing in freight demand, but once that happens we have a couple years worth of trucks to get back on the road. The number of cannibalized trucks has been greatly overstated and the cost of putting old trucks back on the road is only $4,000-$5,000 dollars - half the price increases of 2010 engine-powered trucks over 2009 ones. The base cost of an average used truck is one-third that of a new truck - and maintenance / repair costs don’t really start to kick in until engines need rebuilding a couple years later.
As discussed at the Heavy Duty Dialogue meeting last month in Las Vegas, fleets are looking at keeping their trucks longer. In my corporate days in the ‘70’s and ‘80’s, we worked with fleets like UPS, YRC Worldwide, Schneider National, Swift, JB Hunt, Old Dominion, CRST and others knew well how to keep trucks a million miles - when engines only lasted a quarter of that. Today, Cummins and Detroit Diesel engines last 3-times that and trucks are much better, too. This can be a great opportunity for the parts and service sector, as parts margins there are still 30% plus!
Many are looking at 2011 for bright spots for truck makers - me too!
