Lower diesel prices would be good for the industry, and could be good for truck sales, says Jordan Feiger, vice president and general manager of International Truck & Engine Corp.'s Heavy Vehicle Center.
At a recent teleconference with trucking media, Feiger noted a strong correlation between trucking company failures and the price of diesel fuel.
When prices are high weaker companies struggle. Certainly fuel economy plays a role. "Fuel prices may go down slightly, but you still need to pay attention to how vehicles operate," he said, noting the push by International and other suppliers to improve Class 8 fuel performance.
Another reason high fuel prices can be so devastating -- especially when they go up rapidly -- is that many carriers haven't been able to negotiate contracts that allow for fuel surcharges. That's most commonly a problem with small fleets, but frequently happens to larger carriers as well. The struggling companies also seem to have weaker customers and business that isn't consistent. "Good operations will perform well, no matter what the economic conditions are and certainly not matter what the price of fuel is," he added.
While there are many other factors that affect trucking industry performance and new truck demand, fuel prices play a role. While Feiger stressed that there are no absolute numbers, $1.40 per gallon seems to be a significant threshold. Historically the Class 8 market has shown some improvement when fuel prices dropped below $1.40. For instance in the late 1990s, when fuel prices dropped below $1 a gallon in some places, strong carrier earnings and excess cash seemed to help drive industry demand. When prices start to climb above $1.40 a gallon fleet finances and the market for new trucks could be affected.
"If they hover at $1.40 or $1.50 that doesn't mean that demand won't increase," he said, "but if they get into the $1.60-$1.70 range we'll be concerned that we might not see the kind of increase we're expecting for 2004."
Class 8 industry order intake has stabilized at replacement levels, but Feiger said International's market share is high because much of the market seems to be fleets with 5 to 50 trucks, which is their core customer base. The overall economic trends look good: tonnage has bounced around but seems to be firming, factory production isn't great but appears to be heading in the right direction, diesel prices dropped after the Iraqi war. President Bush's tax cut may not be a big economic stimulus "because it's too darn small," Feiger said, but approval will at least eliminate that uncertainty. While they would have expected a bigger uptick in this phase of recovery, "we do think it's coming," he said.