Summary
Overall truck production is down due to significant slowing in the economy and an uncertain future. The lack of available credit is also multiplying the effect of the economy. Until the economy improves I do not expect truck production to improve.
Analysis
As Bill Clinton reminded his campaign staff in his 1992 campaign, "its the economy, stupid" that is reducing new truck registrations. I know this is an obvious statement but it really is the heart of the matter.
In general the trucking industry has been in a slump for the past eighteen months to twenty months. Truck tonnage, as reported by the ATA, fell drastically late in 2006 and only recovered slightly for the first two quarters of this year. Even though reports point to a slight improvement YOY for the last two months (September and October) they are comparing to a very weak 2007. To get a true perspective compare 2008 numbers to 2006 and you will see that tonnage is down as much as 10% of its highs.
Another major contributor of course is the cost of fuel. Even though fuel prices are now well off the $4.00 a gallon range, fuel is still at least a dollar a gallon more than it was a little more than a year ago. In fact if you were to compare fuel expenses YTD for 2008 to the same period last year you will find that it is up by more than 70%. This has had devastating effects on the cash flow and profitability of most companies.
When combining a slow freight economy with devastating fuel prices the end result is red ink across the balance sheets for all but a few of the trucking companies out there. The lack of profits and the recent credit crunch are keeping most lenders away.
The combination of low truck production and meager activity in used trucks supports the conclusion that the industry is very wary and limited in its options. The only reason there is any good news at all in Class 8 production are those few fleets that can take advantage of major discounts now being offered by OEMs.
Fleets and other truck buyers are faced with a dilemma for 2009. They have aging fleets that they want to replace, a looming 2010 emission change and a weak economy. Faced with these issues it is my opinion that most truck buyers will struggle through the rest of 2008 and most of 2009 buying only limited number of vehicles. All eyes are fixed on the economy and nothing will change until freight volumes return to more acceptable levels.
