Natalie Doss and Mark Clothier
North American truck makers such as Navistar International Corp. are poised for a third year of sales gains as the economic recovery forces fleet owners to replace aging vehicles.
Shipments of what are called “Class 8” trucks, the backbone of interstate hauling, could rise 12 percent this year to more than 285,000, according to industry consultant FTR Associates. That follows gains of 65 percent and 29 percent the past two years as the industry rebounded from a recession-low of 120,000 in 2009.
The Institute for Supply Management’s factory index has shown 31 months of expansion. The haulers, who let fleets age during the financial crisis, are reinvesting in new trucks, and that’s benefiting equipment makers including Paccar Inc.
“You don’t buy a truck unless there’s freight to haul, so that’s catalyst one,” said Jeff Kauffman, a New York-based analyst with Sterne Agee & Leach Inc.
A second driver of demand is that old trucks must be replaced when maintenance costs soar. “From an age perspective, there is a humungous need” for new vehicles, he said.
While truck production has risen each of the past two years, it topped the typical replacement level of 250,000 last year for the first time since 2006, and then by less than 2 percent. Truck makers are boosting production to meet the forecasted demand, with Class 8 assembly up 74 percent last month from a year earlier, the latest for which data are available.
Backlog, or the time from order to delivery, is five to six months and will rise to seven months this year as manufacturers rush to meet growing demand, said Noel Perry, a managing director with FTR. A nine-month lag is typical in a “hot market,” he said.
Truckers are seeking to refresh fleets largely composed of vehicles bought from 2004 to 2006 ahead of a 2007 emissions regulation. Those trucks, in use beyond the usual five years or 500,000 miles, now help compose a nationwide fleet that’s among the oldest since at least 1980.
Maintenance costs grow rapidly as vehicles age and break down more frequently.
“Trucks with less than 500,000 miles on them on average are 2 to 4 cents per mile maintenance cost. Above 500,000 miles, that goes up to 15 to 20 cents,” Ryan Amerman, lead manager of the Invesco Summit Fund, which owns Cummins Inc. shares, said by telephone.
“Especially if you’re a large fleet that’s doing long-haul deliveries, there’s a big incentive to use new versus older trucks.”
Revenue for Navistar climbed 11 percent in the fiscal first quarter of 2012, while Paccar’s sales advanced 58 percent in the fourth quarter, the most recent period for which it has reported results.
Sales for Sweden-based Volvo AB grew 20 percent in the quarter ended Dec. 31. Trucks made up 65 percent of Volvo’s revenue last year.
Shares of Navistar have advanced 7.2 percent this year, while Paccar has gained 24 percent, compared with 35 percent for Daimler and 27 percent for Volvo. Engine-maker Cummins Inc., another beneficiary of the boost in demand, has advanced 34 percent.
Truck demand is somewhat muted by headwinds including a shortage of qualified drivers and rising fuel prices that cut into carriers’ profits.
Not everyone agrees that trucking is recovering rapidly. A sluggish economy means most of the sales are for replacement trucks, said Benjamin Hartford, an analyst with Milwaukee-based Robert W. Baird & Co.
“It’s not growth in the fleet,” Hartford said. “In fact, if you assume those ’05, ’06 model years coming out of the fleet, on the margin, the size of the long-haul, for-hire truckload fleet will shrink this year.”