Truck Sales to Stay Strong Because of Replacement Demand

Feb. 10, 2012
Truck sales will stay strong not only for 2012 but well into 2013—especially in the Class 8 segment—because of the need to replace aging equipment, according to analysts and OEMs

Truck sales will stay strong not only for 2012 but well into 2013—especially in the Class 8 segment—because of the need to replace aging equipment, according to analysts and OEMs.

“There’s been an awful lot of deferred capital investment on the part of carriers over the last few years and so we’re really only at the start of this replacement trend,” Kenny Vieth, president and senior analyst for ACT Research, told Fleet Owner.

“If you look at Class 8 retail sales in the U.S. for 2011, for example, our numbers indicate some 175,700 units were sold,” he said. “But our nominal replacement demand number is 180,000 units annually, so even though sales were up last year, we did not reach the industry’s nominal replacement level for the full year.”

So far in 2012, North American orders for commercial trucks are strong, with heavy-duty Class 8 orders topping 25,200 units in January, while medium-duty Class 5-7 orders were just over 13,500 units for the same month, according to ACT.

“There were no surprises with the level of order intake in January,” Vieth added, noting that both sets of preliminary net orders still support the firm’s North American production forecast of 295,000 to 300,000 Class 8 units this year, along with 175,000 to 180,000 medium-duty units.

Dan Sobic, executive vice president of Paccar, the parent company of Peterbilt Motors Co. and Kenworth Truck Co., said in the company’s fourth-quarter earnings report that annual replacement demand for the U.S. and Canadian truck market is estimated to be approximately 225,000 units.

Paccar is also predicting that Class 8 retail sales in 2012 should increase to a range of 210,000 to 240,000 vehicles, driven primarily by the ongoing replacement of the aging truck population.

“Our customers are benefiting from higher freight tonnage and improved freight rates,” Sobic added, which ACT’s Vieth said will be critical factors for sustaining truck sales through 2012 and beyond.

“Fourth quarter earnings for the public carriers were very solid and we consider them the ‘canary in the coal mine’ if you will in terms of forecasting capital expenditures on new equipment,” Sobic explained.

For example, J.B. Hunt Transport Services reported net earnings of $72.6 million in the fourth quarter of last year on $1.2 billion in revenue, while garnering $257 million in net earnings in $4.52 billion in revenues for all of 2011. The carrier tapped those monies for equipment replacement, noting in its earnings statement that its net capital expenditures for 2011 approximated $446 million vs. $226 million in 2010, primarily due to increases in containers and chassis for intermodal growth.

“All the guys buying equipment last year were the best-capitalized carriers in the industry, but there are a lot of truckers that have been working their way back up to credit worthiness in 2010 and 2011 getting ready to come back into the market,” ACT’s Vieth pointed out.

“They are also being driven by the equipment liability issues posed by CSA [the Federal Motor Carrier Safety Administration’s Compliance, Safety, Accountability program] as well as the need to have new equipment to help attract and retain drivers,” he added. “That’s going to help foster strong orders and sales this year.”

Related content: January’s Class 5-8 Net Orders Meet ACT’s Expectations