A Newport Communications
Service since 1970
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| May 2001 A Newport Communications Service since 1970 |
The heavy truck business has been in recession for almost a year, but we're starting to see some light at the end of the tunnel, says Eaton Chairman/CEO Sandy Cutler. "Order activity in Jan. ticked up for the first time since last spring," he told members of the Truck Renting & Leasing Assn. at their annual meeting. "While energy prices haven't come down as much as we would like, diesel prices are still down from their Oct. high."
New & used truck inventories are down, though still higher than they should be, Cutler said. "The industry still has a task ahead to bring them down more, but more than half of the needed correction from last summer's excessive levels is now behind us."
The market will be "bumping along bottom through mid-year," he predicted, with a U-shaped vs. V-shaped recovery starting in 2nd half. Truck manufacturing will resume strong growth in the next few years, he said, "taking N. American build on a recovery path to 300,000 Class 8 over the next 5 years."
HDT's freight volume index dipped to a 0.2% annual growth rate in 1st quarter, based on the latest estimates of goods consumption & exports. Newport economist Jim Haughey says exports are rising again but the quarterly total was still at last fall's depressed level. The 0.2% rate may be optimistic since it assumes that inventory drawn in the quarter was transported, he cautions. "Not all of it needs to be trucked to the point of use."
Slow start in 2001 will hold freight volume gains for the full year to 1.9% vs. a 7.6% gain in 2000, Haughey says. Freight volume is expected to grow at a 2.6% annual pace in 2nd quarter as inventory drawdowns end. Growth should return to the 3-4% range in the 2nd half of the year as U.S. GDP growth rises to 2.5-3% & inventory stocks begin to rebuild.
One factor in the weaker outlook: strength of the U.S. dollar. It should be depreciating with our stalled economy, lower interest rates & soaring trade deficit, Haughey says, but instead it appreciated 7.5% over last year, much of that early in 2001. "Foreign investors have decided that the U.S. still has the best investment return prospects," he says. To invest they buy dollars, which pushes up the value against current currencies – and hurts U.S. exports.
Another problem: crisis in the worldwide broadband communications market, which has caused massive investment & component order cancellations. Haughey says communications services had prepared their suppliers for 50% market growth this year. Now 20% looks likely. "Hundreds of billions of dollars paid to governments for licenses have drained investment capital, slowing network construction," he says. "Without faster networks, sales of upgraded cell phones & services have been far slower than expected."
Overall, the economy is at the bottom of the cycle & set to resume expansion, Haughey says. When economic growth is near zero & possibly changing directions, data reports are hard to interpret, he notes. "Remember that every market doesn't feel the impact of changing economic conditions at the same time. The changes roll through the economy – market by market – over about 18 months, beginning in the credit, housing & auto market and ending with major capital investments. Right now, the markets at the front end of the business cycle are improving gradually while those at the tail end are falling quickly."
Reversal of fuel surcharges drove down LTL freight rates 0.5% in March; truckload rates fell 0.2%. This is the 3rd marginal decline in the last year for TL rates but Haughey notes that two earlier reductions were reversed the following month. LTL rates have declined the last 4 months, bringing the cumulative fall to 1.5. Both LTL & TL rates are expected to rise 2.3% over the year, which will put LTL rates just above where they ended 2000.
Expected seasonal swing finally reversed declining load posting volumes, says DAT Services Sales Mgr. Jeanne Danielson. "Spring load volumes began to climb aggressively in March. The improved load availability helped truckers after several months of sub-par load performance." Ohio, Illinois, Indiana, Tennessee & South Carolina offered the best combination of high volumes & outgoing/incoming ratios. Oregon, Mississippi & Arkansas had lower volumes but excellent ratios.
March Class 6-8 U.S. truck sales were 25,417, up 18.3% from Feb., says Newport's Haughey. With seasonal adjustments, the gain is about 550 short of the usual seasonal surge. After allowing for seasonality, sales are expected to rise 5,000 units in 2nd, 3rd & 4th quarter, he says. That puts 2001 at 327,000 units, a 15% decline from 2000. Slower than expected recovery is due to lowered expectation in exports & goods spending. Also, the inventory surplus was larger than first reported.
Despite the soft market, Mar. heavy truck prices were 1.8% above Mar. 2000. Trailer prices fell for the 2nd month & are now only 0.8% above last year.
Peterbilt's used truck inventory is the lowest since Jan. '99, Gen. Mgr. Nick Panza tells trucking press at the Mid-America Trucking Show. "Premium resale," he adds, means Pete dealers are in better shape than those selling some competitive makes. 2000 was Peterbilt's 2nd best year ever with a 1.5% market share gain that put them at 11.2% of Class 8s. Early 2001 sales show continued share increases, he noted.
Hino Diesel Trucks (USA) says it's the only truck manufacturer that increased sales across all product lines last year. Despite 9% drop in industry demand for Class 3-7 trucks, Hino's sales rose 27% over '99. Company expects 16% industry decline for 2001 but forecasts 10-15% gain for Hino.
Volvo delivers 26,017 trucks worldwide in the first 2 months of 2001 vs. 27,925 (including Mack & Renault) same period last year. Deliveries to N. America, including Volvo & Mack trucks, were down 35% from last year. Volvo truck sales in Asia were up 54%. Order intake for all of Europe fell 7% but Eastern European sales were up 45%.
2001 trailer demand started weak but we should see signs of stability, albeit at lower sales levels, as early as 1st half, says Economic Planning Associates. "The key to the recovery in trailer demand will be the revitalization of our currently flagging economy," researchers said, noting that interest rate cuts should stimulate key economic sectors in the 2nd half & into 2002. EPA forecasts full year 2001 trailer shipments at 206,300 units, down 22.8% from 2000. Steady quarterly gains through 2002 should bring shipments to 237,200 for the year. Contact: (631) 864-4900.
EXECUTIVE VIEWSThe single most important factor that brought down the trucking industry's fortunes was energy cost, and those fortunes won't change until fuel prices decline, says Freightliner President/CEO Jim Hebe. Noting that every U.S. economic downturn since WW II has been linked to energy problems, "We need diesel prices of $1.15-$1.18 at the pump for a turnaround," he told the Heavy Duty Manufacturers Assn. annual Mid-America Trucking Show meeting.
Barring "something dramatic" Hebe forecasts Class 8 U.S. retail truck sales at 100,000-110,000 for 2001. Canada will be under 10,000. He predicts orders for all N. America will start to pick up next fall & rebound in 2002, when Class 8 sales should hit 150,000.
The national economy needs further action from the Federal Reserve & pay increases in the middle income segment, Hebe said. Technology advances are "beyond the current appetite" of truck buyers unless they don't cost more, are mandated by government, or proven to pay for themselves quickly. He urged elimination of the 12% federal excise tax so the money could be invested in technology development.
While some have blamed Freightliner for the used truck oversupply, Hebe maintains they have "done more than anyone else to fix it. Some of our customers bought too many (new) trucks. . .it's everyone's issue to deal with." He said equipment depreciation rates should be liberalized, financing of used trucks needs an overhaul & dealers must share in the cost of correcting the situation.
Longer range, Hebe predicted that in 5 years truckload carriers will have shorter hauls, drivers will be home more & truck trade cycles will be longer. LTL carriers will grow & have shorter trade cycles, more technology, and more long combination vehicles due to liberalized size & weight restrictions.
Private fleets will grow & return to owning equipment – which will put pressure on full-service leasing companies, Hebe predicted. Owner-operators will buy 10% of new trucks, down from 18% today. As for logistics, "The owner of the best system will dominate. . .he who controls the customer base controls the freight."
ALLIANCES & ACQUISITIONSVolvo bows out of its deal to build medium duty trucks with Mitsubishi, clearing the way for a DaimlerChrysler/Mitsubishi commercial vehicle program. Volvo CEO Leif Johansson said its acquisition of Renault's truck division last year gives it the same volume gain they would have achieved with the Mitsubishi joint venture. "By coordinating Volvo's and Renault's development resources in the medium heavy segment, we will get a less complex and quicker process and can cut development time significantly," he added.
DaimlerChrysler will buy Volvo's 3.3% stake in Mitsubishi, giving it 37.3% of the Japanese auto & truck maker. Volvo said it will use the $230 million gain for medium duty truck development.
Dorsey Trailers agrees to sell its Elba, AL & Cartersville, GA facilities plus trade name rights to Dorsey Acquisition Group. The company stressed that Dorsey Acquisition does not include any current or former company officers, directors or insiders. The deal requires bankruptcy court approval. Dorsey filed Chapter 11 bankruptcy last Dec.
Saipa Diesel to build Volvo trucks in Iran. Husky to distribute Chevron lubricants in Canada. Federal-Mogul to buy 85% of WSK Gorzyce S.A., Polish producer of pistons & other automotive components. Cummins outsources management of 30 company web sites to Digex Inc. @Road & PHH Arval to cross-market each other's products & services.
TMI Communications & Cabit Systems to develop mobile communications applications for the N. American trucking industry. BFGoodrich buys Air Science Engineering. Private investor group led by Keith Bentz buys Bentz Transport Products. Company founder, Richard Bentz, stays on as sales & engineering consultant.
Volvo Trucks N. America awards Mayflower Vehicle Systems truck cab supply contracts previously held by American Commercial Vehicles. Contracts are for a min. 5 years & worth $13 million/year. MVS bought assets & working capital of ACV for $4.35 million. Company will close ACV Orrville, OH, plant.
CUTBACKSMack to cut production at its Macungie plant from 64 to 45 trucks/day in July. Winnsboro, SC plant will have 6 weeks of downtime in March, April, May & June. Hagerstown reduces engine production from 186/day to 165/day next month.
Volvo Trucks N. America cuts 300 hourly & salaried jobs at its New River Valley, VA, plant. Wabash National cuts 500 hourly & salaried positions.
NEW BUSINESSSwift Transportation to install Qualcomm's TrailerTRACS in its fleet of 30,000 trailers. Count could go to 45,000 if Swift's merger with M.S. Carriers goes through. Schneider National names Qualcomm "provider of choice" for trailer tracking solutions. Wireless Data Solutions' Dinet Inc. to supply waste management tracking system to Veit Disposal Systems. LeaseTrading launches online site for lease transfers.
Mack Trucks to move master parts distribution center from Severn, MD, to larger facility to Elridge, MD. Company has a second master center in Chicago. Oshkosh Truck Corp. gets $1 billion, 5-year contract to build heavy tactical trucks for the U.S. Army. Primus Financial Services forms commercial lending div. to serve light, medium & heavy vehicle dealerships.
FINANCIALSChallenge for Cummins is to "fix the heavy duty truck market," says Chairman and CEO Tim Solso. "The North American economic slowdown is hiding the real issues in the heavy duty business," he told shareholders at the company's annual meeting. "Cummins is pursuing steps to re-engineer how it participates in that market."
Those steps include the formation of "innovative relationships with truck manufacturers where Cummins behaves like the internal engine division for a number of truck OEMs," he said. Cummins recently signed a long-term supplier agreement with Paccar Inc., maker of Kenworth and Peterbilt trucks, and last year was named the sole external engine supplier to Volvo Trucks North America. Such relationships, said Solso, will reduce Cummins' front-end marketing costs while enabling the company to develop better products.
Cummins posts $26 million loss on sales of $1.35 billion for the first quarter 2001 vs. $42 million profit on $1.65 billion for 1st quarter 2000. Engine business revenues were $768 million, down 27% from 1st quarter 2000. Loss for the unit was $34 million before interest and taxes vs. $28 million profit a year ago.
Cummins' worldwide sales of heavy duty truck engines was $236 million vs. $415 million last year. Shipments to N. American markets were down 60%. Sales to the medium duty truck & bus markets totaled $144 million down from $150 million. Shipments to N. American markets were down 30%.
EMISSIONSSouthern California's Air Quality Management District offers up to $26.5 million to replace diesel engines with alternative-fuel and lower-emission models. Proposal, part of the state's Carl Moyer Memorial Air Quality Standards Attainment Program, includes $16-$24 million for on-road vehicles, $3-$6 million for off-road vehicles; $1-2 million for fueling stations. Program pays the difference between new diesel engine & lower-emissions model.
TRANSITIONDana Corp. reorganizes the Heavy Truck strategic business unit, renames it Commercial Vehicle Systems. Rick Clayton continues as unit president. N. American Heavy Axle & Brake Div. becomes the Commercial Vehicle Axle Div., focusing on drive axles, OEM axles, modules & related components. Norm Boisvert heads the New Ride & Control System Div. combines elements of trailer axles with new components & systems, including auxiliary axles, steer axles, brake systems, tire management systems, truck & trailer modules. Greg DiMarco is gen. mgr. Both divisions are based at the Commercial Vehicle Technology Center in Kalamazoo, MI.
Dana's Commercial Vehicle Service Parts div. integrates global parts & marketing functions under one banner with Len Newblom as vp/gen. mgr. European & S. American Heavy Axle & Brake divisions combine as one unit. Josetxo Zugaldia continues to be in charge of Europe. Horace Sciliar retains responsibilities for S. America.
Dana Corp. wins 2000 Malcolm Baldrige National Quality Award for manufacturing. Annual award, presented by President George Bush & Transportation Secretary Norman Mineta, recognizes Dana's Quality Leadership Process to evaluate & improve quality performance of its Spicer Driveshaft unit.
Spicer Driveshaft President Joe Sober noted that U-joints were the first product of Clarence Spicer in 1904. His credo then: always "do it right." In today's business environment, one of the company's goals is to further increase product value to customers and to develop more maintenance-free new products with longer life-cycles, Sober said. Dana's leasing subsidiary, Dana Commercial Credit Corp., won a Baldridge award in the service category in '96.
PEOPLEMarilyn Marks resigns as Dorsey Trailer Chairman. Kevin Kokrda to environmental affairs dir., Engine Manufacturers Assn. Steve Buckus to global infrastructure dir., Goodyear Tire & Rubber Co., from distribution systems dir., FedEx Services.
Reed Murphy III, president, Lease Midwest Inc., Kansas City, MO, elected chairman, Truck Renting & Leasing Assn. Peter Vroom to TRALA president from exec. v.p. He succeeds Michael Payne who continues as CEO to the end of 2001.
U.S. RETAIL TRUCK SALES REPORT
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