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How long will the truck sales boom last?

Posted: January 30, 2019 by John G. Smith


Freightliner was the Class 8 market share leader in Canada and the U.S. It also held the top spot in Class 6 and 7 sales south of the border.

LAS VEGAS, Nev. – Order boards are filled for months to come, and truck manufactures and parts suppliers remain optimistic. Cautiously so.

Equipment buyers have been scrambling to secure spots on assembly lines in the midst of one of the hottest truck markets on record. Canadians purchased 35,700 Class 8 units last year alone, 29% above levels seen in 2017, and there’s no signs of things slowing down yet. MacKay and Company analysts are even forecasting 36,800 sales this year.

But boom times don’t last forever. The same MacKay and Company analysts predict the Canadian market will dip to 26,100 Class 8 trucks in 2020 – a drop of 29%. Ken Davis, a consultant and former Eaton executive, thinks constrained manufacturing capacities will keep 2019 from reaching the sales numbers seen last year.

Roger Nielsen, president and CEO of Daimler Trucks North America, expects the market to normalize somewhat by the middle of the year. During 2018, customers and dealers were placing orders as if trucks were sold on a first-come-first-served basis, he said during a presentation at this year’s Heavy Duty Aftermarket Dialogue.

They aren’t.

The over-exuberance led North America’s largest truck maker to cancel 58,000 truck orders that were not considered credible. Today’s orders are being reconfirmed two or three times before trucks are actually built to ensure that backlogs remain strong.

Such numbers are a clear indicator of the equipment market’s health. Bill Strauss, senior economist and economic advisor with the Chicago Federal Reserve, sees increases in cancellations as a “canary in the coal mine”. If orders disappear too suddenly, manufacturers must scramble to adjust their production lines if they want to avoid flooding a marketplace with unpurchased equipment.

Trailer sales

The growth has not been limited to power units, either. The 49,500 trailers purchased in 2018 represents a 30% surge over the previous year, MacKay and Company says, referring to Canadian totals. Although, vice-president John Blodgett says that market should be limited to a 3% increase in 2019, reaching 51,000 units. By 2020, the trailer market is expected to drop to 36,100 pieces of equipment, representing a 28% plunge.

“We’re expecting some element of softening, but it’s come on as strong if not stronger in certain categories,” Great Dane president Dean Engelage said of the year to come. “Backlogs are out toward the end of the year and we’re delighted. It’s been an unprecedented and long run for a cyclical industry.”

He’s forecasting a 10-15% drop in the market for 2020. Then again, that was his 2018 forecast nine months ago.

The state of the overall economy will ultimately be the deciding factor.

“We have now moved into what I call the boom phase,” says analyst Bob Dieli of RDLB. “The economy continues to expand.” It’s good news, but truck sales have also been known to rapidly collapse around what he refers to as boom and pre-peak conditions.

This is a time for businesses to ask how their biggest customers, biggest suppliers, and biggest competitors are doing, he says. That will offer a strong economic indicator without any extensive research.

“We don’t know what’s going to happen with tariffs and other economic indicators,” adds Walt Sherbourne, vice-president of marketing at Dayton Parts. But neither does he expect a sudden downturn or “cliff event”.

These days, one the biggest struggles that he shares with fellow manufacturers is finding people to work in a manufacturing operation. Youth aren’t interested in such jobs, he says. “We’re getting down to people who don’t want to work. They may want to work one day, but they don’t want to work the second day.”

The aftermarket

The strong economic conditions and sales are not limited to new trucks and trailers. The aftermarket serving Canada’s Class 6-8 trucks and trailers was worth $4 billion in 2018, and the growth to that level even took the analysts at MacKay and Company by surprise.

The market swelled 7.2% year over year when compared to the $3.7 billion recorded in 2017, Blodgett said. And the growth doesn’t appear to be done yet. This year he expects Canada’s heavy-duty aftermarket to enjoy a 4.1% compound annual growth rate (CAGR).

Parts prices are also expected to rise 2.1%. That’s under the 4.4% increases that preliminary results suggest for 2018, but still higher than the 1.2% increase recorded in 2017.

The growth isn’t expected to end there. Current MacKay and Company forecasts show a gradual growth to a $4.1-billion aftermarket this year — gaining about $200 million per year from 2020-2022. Even when the business levels out in 2023, the aftermarket is still expected to grow by $100 million on the year.

Truck dealers are earning most of the business. Of the $3.964-billion pie available in 2018, truck dealers accounted for 51%. Heavy-duty distributors had 17% of the business, independent garages held 13%, specialists had 8%, engine distributors had 4%, and auto parts distributors had 3%. Other

Backbusiness models carved out 4%.

In contrast, the US $30.054-billion market south of the border saw truck dealers secure 49%, heavy-duty distributors with 18%, specialists with 7%, independent garages with 9%, engine distributors with 5%, auto parts distributors with 4%. Other business models had 8%.

For now, Canada’s total vehicle population continues to grow. Last year there were 42,000 Class 6 trucks, 151,000 Class 7 trucks, 351,00 Class 8 trucks, and 553,000 trailers on the road. But the numbers are expected to dwindle slightly. Totals in 2023 will dip to 35,000 in Class 6, 149,000 units in Class 7, 353,000 Class 8 trucks, and 552,000 trailers, MacKay and Company projects.

Says Davis: “The industry should really enjoy these robust times.”

Market shares unveiled through preliminary sales data

 

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