Pre-buy a non-issue, OEMs and analysts say

According to Bear, Stearns & Co., a financial advising firm, dramatic increases in Class 8 truck sales in the first quarter this year compared to the same period in 2003 are being attributed to truck replacement needs and fleet expansions, not a feared “pre-buy” effort to avoid 2007 engine technology.

“The majority of the carriers that we’ve spoken to have been ordering replacement vehicles to date and are just at the point of adding incremental capacity,” said Peter Nesvold, a Bear Stearns analyst.

Kenworth Truck Co. agrees with this assessment, noting that strong 1Q sales are attributable to a variety of factors.

“Some fleets are seeking to avoid increased maintenance costs caused by aging equipment,” said Steve Gilligan, Kenworth’s general marketing manager, noting that the pre-buy suffered by the industry in 2002 may even be working in favor of truck OEMs now.

“Some customers had held off purchasing due to concerns over 2002 engines and they had pent-up demand. And, overall, the economy [has] improved with expanding freight tonnage,” Gilligan said.

Mack Trucks, which reported doubling its 1Q truck orders over 1Q ’03, cited similar reasons for rising sales. “We attribute this increase [in sales] primarily to improving economic conditions in the U.S. and pent-up demand,” Mack spokesperson John Walsh said.

According to International Truck and Engine Corp., the larger carriers are not pre-buying.

Patrick Charbonneau, International’s vp of regulatory and technology affairs, stressed that ’07 engines would use “evolutionary” EGR and particulate filters that have been in use now since 2001 – a fact that should damp down inclinations for large fleets to pre-buy.

“FedEx has said that the negative impacts [of ’02 engine technologies] weren’t as dramatic as some thought it would be,” he said.

However, perceptions of the ’07 engines may not be as rosy to smaller carriers with less experience with the ’04 model engines, which is why Charbonneau is concerned that some customers believe that the ’07 engines with suffer the same problems over lack of testing as ’02 engines.

Martin Labbe, an industry analyst, said last week that on top of the strong sales through the economy there is a pre-buy trend.

“The normal replacement cycles of fleets is being accelerated — that is pre-buy,” Labbe said. “The uncertainty of dealing with 2007, as well as the experience with the recent 2002 equipment is causing carriers to be cautious about problems that may or may not occur.”

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