Summary
FTR Associates and Merrill Lynch both indicate that there has been an improvement for net orders of Class 8 vehicles over the last four months. The uptick includes orders for units in the United States, Mexico and Canada.
Analysis
The economy id down, there is a glut of surplus units and yet the orders indicate an upswing in manufacturing. So what is the basis for an increase in Class 8 production? It is certainly an unintentional "stimulus". Simply put it is the pre-buy resulting from new environmental regulations taking effect in 2010.
These are regulations are not just federal, but include some local and or regional environmental regulations in and around West Coast ports.
The problem here is that this is first of all not a sign of economic recovery or industry recovery. It is simply a matter of an industry adjusting to regulatory efforts. Investors who may be inclined to see this as a buy signal for truck manufactures need to be mindful of the fact that not only is the economy not in recovery mode, which would then engender an uptick in freight volume. We are probably never going to see a return to freight volumes
of the past.
But one of the key reasons we may be seeing some carriers replacing units is that local/regional regulatory actions create a balkanized process, in which companies respond by instituting buying programs to improve regulatory compliance. It is just good legal risk management and not sustainable.
