Bear Stearns’ seasonally adjusted Bankruptcy Index decreased modestly to 41 in June from 43 in May, improving 67% y/y from 125 in June 2005 (vs. 64% y/y improvement in May).
Bear Stearns looks to this proprietary data for multiple signals, including strength in its companies' end markets and the direction/magnitude of potential y/y changes in the loss provisions of the truck OEMs' captive finance subsidiaries.
The index hit an all-time best of 25 in November 2005 following a sharp deterioration in September/October.
“We continue to attribute the spike in filings in September/October to the timing of bankruptcy law changes, not fundamentals,” the company said in a release. “Trucker filings spiked in the weeks leading up to the new Oct. 17 bankruptcy regulations, then dropped off materially after more restrictive bankruptcy laws took effect. In contrast, filings were generally unchanged after diesel prices dropped 18% toward mid-November.
“What does it mean for the group? Low trucker bankruptcies typically drive strength in Class 8 orders and retail sales. However, 2006 slots are essentially sold out at this point, and we continue to believe that the 2007 downturn will be deeper and longer than current consensus expectations reflect. We would continue to book profits on the Class 8 stocks.”
-- “Many of this month's channel checks focused on the impending decline in Class 8 builds in 2007. We spoke with two suppliers who are looking for a 30%-40% decline in builds in 2007. When you add to that the less-than-enthusiastic feedback we've received on the 2007 technology, the outlook for for ‘07 continues to decline.”
-- “We spoke with a few of our contacts who are currently testing the new 2007 diesel engines and the feedback thus far has been less than enthusiastic. We spoke with one contact who's currently testing 2007 CAT engines in Peterbilt trucks and while it's still very early, our contact noted that there have already been a lot of maintenance issues with the engines.”
-- “We spoke with the sales and marketing manager for a large tier-2 supplier to the all the major truck OEMs. Our contact said that what he is seeing in terms demand from the major OEMs continues to be very robust. That said, our contact did confirm what we've heard in some of our other checks - that some OEMs appear to have been shutdown for part of June as a result of a shortage of aluminum wheels and air disc brakes. Among the OEMS, Freightliner and, to a lesser extent, Navistar appear to have been hardest hit.”
--“We spoke with the director of sales for a large trailer OEM to get his thoughts on the market and demand going into the second half of ‘06. Our contact said he continues to be surprised by the intake of orders. Nevertheless, our contact remains cautious about the outlook longer term, saying, ‘We'll see how long this [strength] lasts.’ "