A Newport Communications
Service since 1970
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| March 2001 A Newport Communications Service since 1970 |
The worst may be over, says Newport economist Jim Haughey. Factory production dropped only 0.1% in Jan. & inventory changes matched sales changes. Most signs now point to a quick "V" shaped slowdown-recovery period, with GDP growth rebounding to 3-4% in 2nd half. "The quick response to excess inventories by the Federal Reserve Board, manufac- turers, importers, & retailers will keep this economic slowdown much shorter than past episodes," he says.
Jan. inflation numbers were extraordinarily high (0.7% core rate vs. 0.2% over past year) and could forestall further interest rate cuts, but Haughey says those numbers may be misleading since they include large annual change in tobacco prices, unexplained jump in car prices & seasonal adjustment problems common to Jan.
Biggest energy concern: natural gas. Soaring prices last year drained tens of billions from consumer spending & set off electricity shortage in Calif, Haughey says. Supplies are increasing but "only energy conservation can assure that the lights stay on for the next few years." Massive electricity rate hikes in Pacific states will have small spillover effect everywhere else & restrain economic growth for several years. That makes quick tax cut action in Congress very likely, he adds.
Calif. brownouts will curb expansion there. "It's not price," says Haughey, "It's uncertain supply." Rates in Calif. won't reach high levels common in northeastern states, "but no business wants to risk expensive production interruptions."
FREIGHT TRENDSFreight volume fell 0.6% 4th quarter 2000 after downward revisions in consumer spending, business investment & exports, he says. Most of the decline will be recovered this winter. Freight volume will grow 3% this year vs. 7.6% last year but economic growth should push it to 6% annual pace by year-end.
LTL rates dropped 0.3% in Jan. after a 0.2% dip in Dec. due to competitive discounting when business slowed. Haughey says rising production will turn L TL rates up again by spring. He expects 2001 rate gain to be 5.4% after 3 years of increases close to 7%. Truckload rates rose 0.7% in Jan., partly because it takes longer to get fuel price adjustments. TL rates expected to rise 3.5% this year, up from 2.5% in 2000.
Steep drop in available loads continued in Jan. according to DAT Services. "There was no relief in the already tight load market," says Market Research Analyst Michael Grant. "Volumes are not expected to make a significant turnaround until after Feb." States with best inbound/outbound load ratios: Illinois, Ohio, Indiana.
SALES TRENDSJan. Class 6-8 sales drop to 22.705 units, the lowest in 4 years but after seasonal adjust- ments sales show steady 26,000/month since Sept., says Newport's Haughey. Truck demand expected to start slow climb by end of winter, with enough new buying by mid-year to raise production & retail sales in 2nd half. Capital & operating costs are falling, Interest rates are down a percentage point, with another point drop expected by summer. 2001 forecast: 351,000 U.S. retail Class 6-8.
Heavy truck sales slowdown is mostly confined to U.S., says Haughey. Factory sales & imports from Canada & Mexico have held under 20,000/month since Sept., which means 6,000-7 ,000 trucks/month are being absorbed from U.S. surplus. New tractor inventories should be back in balance long before the overhang of parked & underutilized vehi- cles ends, he says.
Trailer shipments dipped to 13,993 In Dec. Most recent peak level was 24,789 Mar. 2000, Haughey notes. Production & shipments should return to 17,000-19,000 range in a few months. 2001 forecast: 211,000.
AFTERMARKETTruck & trailer population grew 36% in last decade but replacement parts demand was stagnant: 8% growth when adjusted for inflation, says Stu MacKay, MacKay & Co. Forecast for 2001 heavy duty parts sales is $11.19 billion (without inflation) vs. $11.34 billion in 2000. By segment: power generation, $3.45 billion, down 4.5%; power transmission, $1.62 billion, down 3.7%; undercarriage, $3.12 billion, down 2.2%; other, $1.71 billion, up 0.6%. Reasons: more durable components, lower annual mileage & utilization, especially for trailer & Class 8 trucks. MacKay says 51,400 Class 8 trucks were taken out of active service latter half of 2000.
From 2000-2005. parts demand will riae only 1%, MacKay predicts. While Class 8 pop- ulation is expected to grow 9%, annual mileagl will drop 1% with more restrictive hours-of-ser vice rules. Trailer population projected to grow 8% but annual mileage will drop 1%. Medium duty population will rise 16% -- buoyed by shif to Class 7 school buses -- average mileage will increase 2%. Component durability will contin. ue to improve. Examples: Out-of-frame overhauls now done, on average, at 107 months, will stretch to 126 months. Clutch replacemen1 from 48 months to 60 months; air compressor from 56 to 62 months, power steering pumps from 58 to 65 months, alternators from 41 to 4 months.
Oversupply of used trucks could take 24 months or more to work out, says MacKay. Industry has 72,000 too many used Class 8 trucks, 32,000 too many mediums & 146,000 trailers. Class 8 universe in '90s changed from 45% used truck buyer/55% new to 40% used truck buyer/60% new. Medium duty market was 45% used/55% new. Now it's 40% used/60% new.
Trucking consolidation is creating more big fleets, says MacKay VP Bruce Plaxton. In '90 35% of U.S. fleets had 500-plus trucks & 30% had less than 10 trucks. Today 43% of fleets are 500-plus, 22% are under 10 trucks. He projects that by 2010, 45% of fleets will be 500-plus & 10% will be under 10 trucks. One impact: less brand & channel loyalty. About half of capital equipment buyers now base decisions on total cost comparison & perceived quality. "This is where the fight will be," he says.
Economic growth will remain sluggish all year & vulnerable to a generalized downturn, says MacKay consulting economist Robert Dieli. More interest rate cuts are expected but inflation worries -- especially regarding energy prices & labor costs -- will limit the Fed's room to maneuver. Dieli says 3 factors will determine if 2001 is a pause or end of expansion: whether inflation rises enough to require Fed tightening, how the bond market gets back to a normal curve, & return of investor confidence in financial markets & goods purchasing.
Current new truck market feels like late '70s and '80s -two decades that ended in recession, notes Freightliner President/CEO Jim Hebe. He blames economic & trucking slowdown on overzealous Fed interest rate hikes which further stifled already stalled manufacturing sector. There's time for recovery, he says, but it will take tax & interest rate cuts to stimulate consumer spending.
Freightliner revises earlier 2001 Class 8 forecast from 162,000 units to "disaster scenario" 135,000 units, including 10,500 for Canada. If late Jan. market conditions continue, sales could go as low as 110,400 U.S., 9,600 Canada. But Hebe says it's a tough call. "We're taking it quarter by quarter," he says. "There are just too many open issues & unknowns to predict 2001." Class 6/7 "disaster scenario" forecast is 130,500 U.S.; 4,000 Canada. Hebe says it will probably be closer to 155,000 units -still well below 2000's 193,000 units.
Freightliner LLC built 151.111 trucks in 2000 vs. 190,000 in '99, but still its 2nd biggest year. Steepest drop was Freightliner trucks, from 89,962 to 62,768. Hebe says they're less reliant on Freightliner Class 8 business -- that share of corporate revenue has dropped from 63% in '97 to 46% last year -and shifting focus to more profitable segments. Parts business grew from $214 million in '91 to $846 miliion last year & doesn't include engine parts. "That's why we're so interested in proprietary engine business," he says, adding that they want to reduce engine suppliers to 3, including Mercedes-Benz.
Mexico is growing faster than U.S. or Canada, says Hebe. Class 8 sales in 2000 were 10 times '96 level, Class 6 & 7 close to double. Freightliner's Mexican plant can now build any of its products. Plan there is phase out FLD120 production & tool up for Columbia. Dodge & Chrysler medium duty product has gone away. Mercedes-Benz, Sterling & Freightliner brands will stay, he says.
FINANCIALSPaccar posts 2nd best year in history despite 2nd half decline of N. American heavy truck market. 2000 revenues were $7.9 billion, down 12% from record $9 billion in '99. Income was $441.8 million vs. $583.6 million in '99. 4th quarter revenues were $1.7 billion vs. $2.3 billion 4th quarter '99, income was $62.7 million vs. $179.9 million.
Geographic diversification was key to Paccar's solid results in 2000, says Chairman/CEO Mark Pigott. lIThe cyclical truck market experienced last year in N. America was the most challenging for the industry since 1990/91." Industry orders for new heavy trucks dropped 42% but Kenworth & Peterbilt combined market share rose, he notes. European truck market was strong; Paccar's OAF and Leyland subsidiaries both increased production last year. A rebound in N. American truck sales isn't expected until current new & used inventories are absorbed, says Pigott. Margins are under increased pressure as lower demand is experienced industry wide."
Navistar International posts $35 million loss on $1.5 billion sales for its 1st fiscal quarter ending Jan. 31. 1st quarter 2000 sales were $2.2 billion, profit was record $70 million. Chairman/President/CEO John Horne blames extremely low used truck values, record high diesel fuel prices & high interest rates that caused truck buyers to defer purchases. He says they'll keep production low until dealer inventory levels reflect current demand. Mack celebrates 8th straight year of Class 8 market share gain, inch1ng from 13.1% in '99 to 13.3% in 2000. Mack Canada sold 2,848 units, boosting market share from 9.3% to 10.2%. Mack Truck Australia sales rose from 742 to 790, market share jumped from 11.9% to 14.3%.
Cummins posts $17 million loss in 4th quarter 2000 on sales of $1.61 billion vs. $25 million profit on $1.84 billion 4th quarter '99. Profit for year was $111 million on sales of $6.8 billion vs. $205 million on $6.6 billion for '99. 4th quarter heavy truck engine shipments were down 52% from year earlier; medium duty engine shipments dropped 39%. Sales to construction, light truck, filtration & power generation markets were also down. Chairman/CEO Tim Solso says Cummins is working on strate- gy to "fundamentally change" how it participates in N. American truck engine business & expects to make an announcement early this year.
Wabash National posts $83,000 net income for 4th quarter 2000 on sales of $275 million vs. $11.8 million on $358 million 4th quarter '99. 2000 results don't include $46.6 million restructuring & other non-recurring charges. 2000 income was $21.7 million on sales of $1.3 billion vs. $38.8 million on $1.5 billion for '99. Company says quarterly results were hurt by lower production rates & start-up costs of new processes at Tennessee plant.
N. American retread volume was down 7% for 4th quarter & 8% last year, says Bandag Chairman/CEO Martin Carver. Demand for retreads was hurt by influx of new imported tires & decline of new truck demand. Bandag's 4th quarter profits were $14.8 million on $252.7 million sales vs. $8.1 million on $263.2 million 4th quarter '99. Profits for the year were $60.3 million on $996.1 million sales vs. $52.3 million on $1.0 billion in '99.
LAYOFFS, PLANT CLOSINGSFreightliner to cut 2nd shift at Portland, OR, truck & parts plants this month, laying off 1,085. Truck build rate will drop from 74 to 35/day. Volvo Trucks N. America cuts 400 jobs at its New River Valley, VA, plant. Kenworth lays off 135 at its cab & frame assembly plant in Chillocothe, OH. International Truck. Engine lays off 500 at Springfield, OH, plant.
Hendrickson International to close its Chicago plant, transfer production of medium and heavy duty truck springs to operations in Mexico & Canada.
ALLIANCES & ACQUISITIONSFord & Navistar joint venture to build Class 6 & 7 trucks, explore opportunities in smaller commercial vehicles. 50/50 venture to produce common chassis for sale in N. America. Navistar will assemble the trucks at its Escobedo, Mexico plant & will provide design, engineering & expanded diesel engine program. Cabs, interiors & vocational focus will be "distinctly" Ford & International. Trucks will be sold separately through International & Ford dealers.
Paccar & Cummins sign long-term supply agreement covering heavy duty ISX, Signature, N14, ISM & ISL engines. Cummins to supply medium duty engines for DAF's new LF Series. Paccar to drop Detroit Diesel offerings later this year.
Phillips Petroleum to buy Tosco Corp., creating country's 2nd largest refiner & 3rd largest marketer with Phillips 66, the '76, & Circle K brands. Bendix Commercial Vehicle Systems to be exclusive N. American distributor of Spectra Inc. Brake Safe brake stroke indi- cator & diagnostic system. Products will be sold under Bendix name.
TRW awards SmarTire exclusive manufacturing, marketing rights to TAW commercial tire monitoring systems. Davco Manufacturing to incorporate Donaldson filtering technology in its fuel processing systems. Delphi Automotive Systems to develop Duraswitch magnetically coupled switch technologies for National Seating.
NEW BUSINESSMail Contractors of America to buy Eaton Trucking Information Services' Fleet Advisor system for its 1,000-plus trucks. Eaton gets $500 million multi-year contract to supply General Motors with advanced powertrain technology for undisclosed future program.
Hino Motors to build commercial vehicles in N. America, possibly starting 2004. Company says it also may build a plant in China. Feasibility studies for both are underway.
LEGALArvinMeritor to appeal District Court decision siding with Eaton in lawsuit over Engine Synchro Shift transmission system. Eaton says it infringes on one of its patents. ArvinMeritor says patent was improperly obtained.
Michelin adds Bridgestone/Firestone to its antitrust suit against Bandag, claiming BFS & Bandag illegally agreed to induce dealers not to adopt Michelin's retreading systems.
EVENTSEconomic Summit III, updating industry management & marketing execs on trucking trends/development, to again feature Merrill Lynch sr. vp Jeffrey Kauffman's Wall St. view of the industry. "Nothing but Net" panel on fleet use of Internet to include Robb Bartz, Ryder System group dir. e-commerce; Tom Beam, landstar Ligon president, and Kauffman. Tim Lynch, Motor Carriers Assn. president/CEO, to deliver Washington report including views on opening Mexican border under NAFTA. Invitation-only session, sponsored by Newport Communications, will be Wed., March 21 in Louisville.
PEOPLEKarl-Ehrling Trogen to acting pres/CEO, Volvo Trucks N. America following resignation of Marc Gustafson. Trogen, currently an AB Volvo sr. vp., headed U.S. firm from '91 to '94.
Keith Wilson Jr. to vp/general mgr., Dana Corp. Wix Filtration Products Div. Automotive Aftermarket Underhood Group, from vp/gen. mgr., Dana's Victor Reinz div. Donald Wenzinger to president, Doron Precision Systems, from marketing, sales & planning director .
Brian Buckham to marketing mgr., Hendrickson International Trailer Suspension, from Kumho Tire product development mgr. Deborah Whistler. to managing editor, all Newport Communications magazines, from features editor. Evan Lockridge, Newport broadcast producer, gets additional responsibilities as news editor.
U.S. RETAIL TRUCK SALES REPORT
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