Suppliers Start to See the Benefits of the Turnaround

The extent of the heavy-duty market turnaround is showing itself in recent numbers from the second quarter, with 84 percent of suppliers reporting sales growth and nearly 82 percent reporting optimism

, according to the Heavy Duty Manufacturers Association's Supplier Barometer. The association received 50 responses to its second quarter 2010 survey.

Sales and Concerns

According to HDMA's results, more than half of suppliers said they've experienced year-over-year sales growth of over 10 percent. Nearly half said year-over-year OEM truck customer sales have grown more than 10 percent, while 40 percent reported year-over-year growth of OEM trailer sales over 10 percent. In addition, when asked about growth in OES customer sales and independent aftermarket sales, nearly 40 percent of respondents have seen growth of over 10 percent in both of these segments.

In addition, nearly 30 percent said they've seen substantial growth in sales, compared to about 1 percent in the first quarter with the same answer. Almost 65 percent indicated modest growth in sales.

While weak sales have been the top concern for suppliers for the past six quarters, this quarter it ranked last. For the second quarter, top concerns were raw material availability and cost, customer forecast accuracy and demand volatility, the report found. Another concern was healthcare costs.

Situation Analysis

When looking at the year ahead, suppliers reported a positive outlook on their business. Over the last month, almost 65 percent said their outlook has become somewhat more optimistic, while a quarter said they've become significantly more optimistic. Unlike previous quarters, no one said their outlook has become more pessimistic.

While the majority of suppliers, 60 percent, reported no change in prices during the past three months, about one-fourth said they've increased prices modestly. For the first time in four quarters, a few suppliers said they've increased prices substantially, at about 3 percent.

Planning Activity

Hiring activity picked up in the second quarter among suppliers, with nearly 80 percent of suppliers doing modest hiring, up from about 56 percent in the first quarter. About 8 percent of suppliers reported substantial hiring, up from about 1 percent in the first quarter.

The trend was similar for production activity. While suppliers were mostly not changing production capacity in the previous three quarters, about 60 percent said production capacity was increasing modestly in the second quarter, the top answer. About 10 percent reported a substantial increase, while about 28 percent indicated no change.

Nearly 75 percent of suppliers reported modest additions to inventories, while about 1 percent reported substantial additions, and the rest were not changing inventories.

Looking Ahead

When suppliers were asked to predict when the turnaround in Class 8 truck build in North America would occur, the top answer, at about 43 percent, was the fourth quarter of 2010, followed by the first quarter of next year, at 20 percent.

For 2010, suppliers said they expect Class 8 factory build to be at 128,500 units, on average. Meanwhile, the average build rate for 2011 among suppliers was 171,750 units.

For 2010 medium-duty factory builds, suppliers said they expect to see 97,000 units on average, compared to 107,500 units for 2011, on average.