No Worries About Declining Truck Orders, Analyst Says

Although preliminary ACT Research truck orders in April were moderately lower than expected for the second consecutive month, the weakness is being exacerbated by short-term anomalies and should be downplayed, according to Sterne Agee analyst Jeff Kauffman.

“A premature end to the heavy-duty truck cycle? We think not,” Kauffman said. “We would be hesitant to read too much into the weakness.”

Class 8 net orders were 17,200, down 14% month-over-month and down 55% year-over-year Class 5-7 orders were 16,200, up 10% month-over-month and down 3% year-over-year.

“Note the year-over-year comparison for Class 8 orders looks artificially weak given the outlier year-over-year comp,” he said. “April 2011 net orders of 38,100—a figure rarely seen—which increased 157% year-over-year, and were related in part to heavy snow in the winter, which backlogged orders into the spring.

“We would have liked to have seen April Class 8 net orders closer to 20,000 or so, but in the context of the entire 2011/2012 order season, the numbers still look to be trending at a healthy rate.

“Class 8 net orders likely were impacted by non-fundamental issues, many of which are temporary, in our opinion. In late January, Bendix Commercial Vehicle Systems, which manufactures the ATR-6 relay valves used in air brake systems for heavy trucks, announced that there was a potential intermittent air leak discovered, which in extreme cold conditions, could cause service brakes to apply and other operational problems. In our discussion with customers at the Mid-America Truck Show, some indicated an interest in holding off on orders until the issue was resolved, more than likely to complete orders in the seasonally slower summer periods.

“According to Bendix Commercial Vehicle Systems, some 50,000 to 60,000 commercial trucks are affected, which caused concerns and in some cases, delivery delays and recalls at truck OEMs Peterbilt, Kenworth, Volvo and International.

“In addition, the increase in fuel prices during the seasonally slow 1Q period led some fleets to slow some order plans until either freight seasonally picks up in the spring, or fuel prices retreat. We believe that the EPA-related delay in approval of the International 13L engine could be weighing on these results as well. We believe all three factors should be less of an issue in future quarters.”

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