Class 8 truck manufacturing up 27% and still climbing

Diesel Progress North American Edition, June, 2004 by Jim Winsor

Who would have "guesstimated" a year ago that the Class 8 heavy truck market would be booming in 2004? I'm an optimist and felt there was a pent-up demand based on sales going in the dumper after the October '02 emissions deadline had passed. However, there were no signals out there making it clear that 2004 would be potentially a barn-burner year. And that's the way it has started out.

In 2003, Class 8 ended up at 180,000 units. Comparing production rates during the first quarter of '04 with a year ago, the build rate is up 27% and still climbing. John Stark of Stark's Truck and Off-Highway Ledger, said his most recent survey pegs 2004 production at 227,500 units for U.S., Canadian and Mexican Class 8 plants. This is healthy but substantially below 1999-2000 boom years.

By mid-May, production of Class 8s had grown to 917 units a day, an 18% increase since the first of the year. There's little doubt now that the U.S. heavy truck markets are on a roll and will continue to 2007 when the next EPA diesel engine emissions mandates kick in. Many fleets which had taken a wait-and-see position about potential problems with the '02 EGR engines felt they seemed to be reliable, although fuel economy for the most part was below forecasts.

With the U.S. economy pretty much back on track, truck tonnage has been booming and capacity in some areas has been severely stretched. More and more fleets are now buying both replacements for older high-mileage units; many are adding vehicles to grow their businesses.

Paccar CEO Mark Pigott, speaking at the annual meeting of the American Truck Dealers Association, noted that "trucking is the life-blood of the economy and the independent truck dealer is the backbone of trucking ... This will be a good year for the trucking industry."

Pigott pointed out that in 2001, 45% of heavy-duty trucks were more than three years old. By 2004, over 65% are more than three years old. Translation: there are over 1.8 million heavy trucks out there past their third birthdays and many of them have been good for truck dealers' parts and service businesses.

Many truck buyers are now realizing that while '04 truck prices are up, they're a bargain compared to what the 2007s will be. On this basis, some well-known motor carriers have placed some big orders. Early this year, Phoenix-based Swift Transportation announced a 4000-tractor order with Volvo spread over two years. Just last month Swift announced another order for 3000 tractors over three years with Kenworth. Heartland Transportation is replacing its entire fleet between now and '07 and has placed an order for 2800 Internationals.

As the truck manufacturers planned increased build rates, there has been concern as to whether Tier 2 and 3 suppliers would be able to grow their production rates fast enough to meet OE needs. Apparently, so far, so good, although some smaller suppliers have been leery about adding more resources as they expect sales to plummet in 2007.

Manufacturers for the most part have assured truck OEs that they could keep up with demands if given adequate lead times and availability of raw materials.

There have also been concerns about steel shortages and frequent price hikes. There was a reported demand surge from December to mid-March that drove steel prices from $180/ton to $550/ton. Steel prices reportedly are now more stable although Freightliner and Mack both announced price surcharges on their trucks.

Steel isn't the only cost going up. Tires have taken a big hit followed by aluminum, copper and wood. And, of course, fuel (gasoline and diesel) is up over 30 cents/gal in many areas. There is unconfirmed speculation that because of material hikes, Class 8 truck prices will increase between $800 and $1400 by the end of June by many truck manufacturers.

On the engine side, Detroit Diesel's Tom Freiwald, senior VP, marketing said, their production by April was up to 190 engines a day from 130 a day a year ago. DDC is working one-and-a-half shifts a day but no weekends. Concern is shortages of pumps, bearings and piston rings.

JIM WINSOR IS EXECUTIVE EDITOR OF HEAVY DUTY TRUCKING AND DIRECTOR OF MARKETING FOR. NEWPORT COMMUNICATIONS.