Caterpillar Report Indicates Transport (And Other) Market Conditions For 2008 Are Flat - Or Even Down

Implications: Caterpillar is the leading worldwide equipment-maker. An engine is usually the most expensive component - and on / off road emission regulations are merging. Construction and trucking are both good leading indicators. Their FCC Equipment Financing Division is quietly growing their trucking equipment financing business and also offering the marketplace good planning insight into the future. Is this good background for a further move by Cat into trucking? I personally think so! Regardless, the referenced article is a good read.

Analysis: Cat Finance and FCC Equipment Financing Division's finance more equipment than any other equipment manufacturer. Cat Financial Services have a total of about $28B financed, as compared to Paccar Financial with $10B and Navistar Financial with $3B. Of course, GE Capital is still the biggest at several hundred billion dollars including some very expensive equipment (airliners, power plants and train engines). Some of the FCC folks have a lot of trucking financing experience from the old Associates / CitiCapital and CIT truck groups - and are relationship-focused types.

Cat builds their own engines for their own equipment, parts for third-parties and has had their engines offered in trucking for a long time. They well know the linkage between construction and other leading indicators - and trucking. Their truck engine market share has varied over time, but they have always been a player (from 20-25%) - actually more consistent than their competition. Emissions rules for off-road and trucking will soon be similar, as will then be the engines for each segment - so being in trucking long-term makes sense.

Their report indicates much of what has been discussed by some of us already, but worth noting again. First, there are no imminent signs of a stimulus resulting in an up tick in economic activity (I agree). They predict that freight levels will be down another point (can’t counter that). Heavy Duty Truck sales will be up a bit (I'm not so sure) and they will be for replacement (agree). Demand for mid-range trucks will be down (agree just looking at municipal / State spending, let alone construction support). Weakness in housing will continue to affect transportation demand (agree). Actually, financing is an on-going problem (and opportunity) for the majority of the trucking industry even if freight would improve.

The PDF report one can download from the link in the article addresses general economic activity, critical trucking issues (which we may quibble with priorities), carload rail and Intermodal moves and more. It also gives additional input on their rail services and the bus segment, which Cat is also involved in. Overall, it’s a very good overview - and I’m impressed! Construction equipment, trucks, trailers and financial services make for good cross-selling opportunities, too!