GET on board or get left behind.
That was pretty much the message delivered by Steve Latin-Kasper, NTEA's market data and research director, in his presentation, “What is the Future Economic Landscape for the Work Truck Industry?”
While the industry may not be able to maintain the growth rate of 2011 — according to HIS Global Insight, Class 3-8 retail truck sales in the US were up 29.9% — strong growth is forecast for the next four years. The projection is for sales to be up 5% this year, 7.9% in 2013, 8.5% in 2014, and 6% in 2015 before dipping 0.9% in 2016.
“You need to get in growth-management mode,” Latin-Kasper said. “There are going to be more sales coming in 2012, 2013, and 2014, not less.”
• Try to stay ahead of the curve regarding hiring, especially high-skill positions. He said it is likely that the industry will continue hiring slowly in 2012, and the market for engineers, welders, and other highly skilled labor probably will require attention in 2012.
“You need at a minimum right now to think about who you need to hire and how you are going to find those people,” he said.
• Continue searching out export markets for your products in 2012. Because the US dollar remains low in terms of other currencies, 2012 will be another good year to find customers overseas.
Commercial vehicle and equipment exports were up 54.9% between 2009 and 2011, with a super-charged pipeline to Canada increasing from $7.9 billion in 2009 to $11.9 billion in 2011. Latin America other than Brazil was up 93.9%, going from $367 million to $712 million.
In terms of imports during that same time period, Mexico has increased 195.3% (from $5.3 billion to $15.7 billion) while Canada has decreased 25.4%.
“All recent movement in terms of developing new partnerships has been on the southern half of map,” he said. “More and more trucks and equipment are coming into the market from Mexico, and that will continue.”
• As of the end of 2011, inventories of chassis and equipment seemed to be under control. If the economy continues to expand in 2012, managing inventories will become more difficult. Companies expecting that to be an issue should consider communicating their concerns to their suppliers ASAP to avoid expansion of lead times in the second half of the year.
“Especially in the medium-duty segment, it’s going to get more difficult,” he said. “You don’t want to wait to talk to your suppliers about growth in 2012 and 2013. You want to talk to them and make sure you’re on the same page. Don’t let good times lead to long lead times. Not good for you. Not good for the industry.”
• Keep abreast of changes in metals prices. If global demand heats up again, and it probably will, metals prices could start rising swiftly. Be ready to manage that process.
Producer Price Indexes that have increased in the past year: 4.8% for truck trailers and chassis 10,000 pounds per axle and over, 4.5% for truck trailers and chassis under 10,000 pounds per axle, 2.2% for truck and bus bodies, 3.7% for dump bodies, and 4.8% for other bodies.
In the last quarter of 2011, there was a 4.7% increase for trucks, truck tractors, and truck chassis 14,000 pounds or less.
He characterized 2011 as “a very good year” for the industry as a whole.
“Clearly we've seen substantial growth since we bottomed out in 2009,” he said. “Total work truck industry shipments went from $62 billion to $75 billion in 2010 to $93 billion in 2011. We expect to get another 20-25% growth in 2012, which will push it to $115 billion. As good as 2011 was, we've still got a long ways to go to get back to where we were in 2006.”
Commercial chassis shipments have increased 23.1% and 24.1% in the past two years, while truck equipment shipments have gone up 8.8% and 21.6%.
“The equipment side of the industry didn't go down as bad as the chassis side in 2008 and 2009,” he said, “and it didn't go back as quickly at the same rate in 2010 as the chassis segment. You can't start putting bodies and equipment on chassis until chassis start moving through the system, which didn't happen until 2010. The chassis and equipment segment growth should be about the same in 2012 as 2011.”
On the Production Index in the medium-duty segment: “Pressure is strongly up as we start 2012, so the segment has pretty good things to look forward to. We can expect higher growth in 2012 than 2011, and we should start seeing some of the lighter duty — particularly Class 3 — picking up by the second half of the year to go along with the rest of the segment as construction starts to kick in and help.”
On the heavy-duty segment: “Pressure is up, but we are very near to reaching the peak. It would be almost impossible to have another 80% growth year in the heavy-duty cycle. Heavy duty was growing about 90% as we ended 2011. That's very high growth in terms of production. But that does not necessarily translate into sales rates that good.”
He said that when freight numbers go up, trailer production follows. It hit positive territory in the second quarter of 2010, then grew 100% through the middle of 2011.
“It will be 25-30% in 2012 and then will level off as the ATA freight line levels off,” he said.
Retail sales catch up
Showing a chart comparing North American factory shipments to retail sales of straight trucks (Classes 7-8), he said: “As we approached the end of 2011, we had a rather substantial gap in terms of inventories, and retail sales caught up. Factory shipments leveled off at the end of the year. The industry as a whole as far as heavy-duty straight trucks has done a pretty good job of controlling inventory. Lead times have not pushed out in this current cyclical expansion the way they did in the previous cyclical expansion.”
In analyzing total US straight truck retail sales by chassis type, he said all growth in 2012 was in conventional cab chassis. At the peak of last cyclical expansion in 2006, over 30,000 were being sold per month in the US. As 2011 ended, that number was 18,000.
“I don't think we'll get back to a 30,000-units-a-month production level unless we keep growing for three to four years until 2016,” he said. “If we keep growing at the pace we're on, we will see that, but still won't get back to 2006 levels until 2016. When will other cab types start growing as the conventional cab chassis segment has? Chances are, they probably will not. If you look at their history, they don't go like that. Sales of the other three are nowhere near as volatile as conventional cab chassis. It's that volatility that causes volatility as a whole because it's a large segment of the market.”
Latin-Kasper said we are all cognizant of the fact that the federal government spends a lot of money, but many don't realize that state and local spending is much larger.
“That's where you're selling trucks,” he said. “The federal government doesn't buy a lot of trucks.
“State and local spending lags the recession. It also lags going in the other direction. Tax revenues went up in 2011. The problem from an industry perspective in terms of making sales to states and locals is that all have a constitutional obligation to take care of deficits before they can use any additional monies coming in to increase expenditures on equipment. Since all running deficits are carrying over from the recession, the simple matter of a revenues increase in 2011 wasn't enough to get them to spend money on trucks and equipment.
“In 2012, it finally starts to change, but not substantially because most of the 50 states still are dealing with deficits. To the extent that it's necessary for 2012's revenues to increase, they finally finish off paying deficits, and in the second half of 2012 they start re-budgeting and pushing more money into expenditures. 2012 is not likely to be a great year in terms of growth compared to 2011, but it's going to be better than in 2011, not worse. Things should look better for trucks sales. Going into 2012, municipalities should be a good place to look for growth in sales.”
He said state and local government construction spending dipped 8% in 2011, but that was the bottom, and spending will increase in 2012.
Total private construction spending — which “dwarfs state and local spending” — bottomed out in 2010, but improved 18% in 2011.
“For first time in four years, construction will stop being a drag and start being a net positive,” he said.
He said utilities and telecoms will be very good end-use markets for the next four or five years. Capital expenses for utilities was up 7.2% in 2012 and is projected to be up 9.9% in 2013. Telecom CAPEX was up 5.2% and is projected to be up 6.9%.
Farm income is projected to be up 13.9% this year, but falls off to -8.3% in 2013.
Logging will go from -6.8% in 2011 to 9.8% in 2012 and 18% in 2013. It's a similar picture in mining support and the service industries.
“This is the time when you need to start planning for growth,” he said. “The data we're looking at indicate not just growth in 2012, but for years after that. You don't want to get caught lagging behind the competition.”
The biggest downer conceivably could be the price of diesel fuel.
“We survived $4 a gallon before and probably will survive it again,” he said. “Most analysts see $5 a gallon as a real tipping point. That's when people get totally fed up with it and say, ‘I'm not going to deal with it anymore.’
“And that's what this huge technological push is regarding hybrids. It's about anticipating that day. We all know that day's going to come. At some point in time, we are going to see $5-a-gallon diesel. Going forward for those who haven't been paying attention to hybrid-truck technology, you need to. That's why all this money is being thrown at hybrid technology.”
• The leading indicator has increased for nine consecutive months.
• The COLAG is even more positive than the leading indicator.
• The dollar is still relatively weak versus the world’s other major currencies, which is good for exports.
• Pent-up consumer demand.
• The savings rate is falling and consumers and businesses are sitting on piles of cash. High inflation could make consumers save less and spend more.
• The average age of trucks is still high, so that’s an additional incentive for those in utilities and telecoms and other application markets to be “using their piles of cash and not let those trucks get any older than they already have.”
• The construction industry is still not growing.
• State and local government spending is still stagnant.
• There is labor market imbalance.
• Consumer confidence.