Class 8 Sales Hit Hard By Fuel Prices

An unexpectedly dramatic fuel-price increase in February and March has eroded carrier profitability and translated into fewer orders for Class 8 trucks, A.C.T. senior partner Kenny Vieth said.

"Through the fourth quarter, carrier profits remained surprisingly buoyant," he said in a conference call Tuesday. "The bad news is that in a six-week period from mid-February through the end of March, there was a 70-cent increase in the price of diesel, so trucker profits probably got creamed in the first quarter.

"If truckers aren't making a lot of money, truckers aren't buying lot of equipment. It's really a cash-flow issue for a lot of truckers."

He said the fuel-price issue has put a damper on the entire short-term economic outlook. He said the United States consumes about 200 billion gallons of gasoline and diesel on an annual basis. For every penny increase, roughly $2 billion is diverted from consumption and investment to energy. The average price of diesel has gone from $2.89 a gallon in 2007 to $3.95 now.

"You start doing the math-it works out to somewhere between $250 and $300 billion that will be diverted this year," he said.

He said the good news is that although we're not seeing a demand-side recovery, there is a "kind of stealth supply-side recovery" going on for truckers.

"There are considerable sales of late-model Class 8 equipment beyond the U.S.," he said. "There is capacity leaving the market, which should allow profitability to recover. And once trucker profitability recovers, then getting trucks offshore means you need more trucks domestically."

He said there will be an estimated 19,500 units in used Class 8 exports in '08 after 20,800 in '07.

"Accelerated by the weak dollar, the U.S. long-nose conventional tractor has become the truck of choice in Russia," he said. "That has become another North American truck market. It's our understanding that both the No. 1 and 2 market-share leaders in Russia on the new-truck side are both U.S. badges. Europeans are losing that market. Russia is the ultimate long-haul truck market. It's a good sign and also a big reason why used-truck values have remained as healthy as they have. This is the stealth supply-side fix. Even though the economy is not doing well, there is capacity going out of the market, which is setting the stage for better times to come."

View more Trailer/Body Builders news relating to alternative fuels, idle reduction, fuel conservation, fuel economy and diesel fuel prices.

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