Steady decline in preliminary July Class 5-7 and Class 8 orders

Preliminary Class 8 net new orders for July, released by ACT, were 15,500, close to Bear Stearns’ "low-teens" forecast. That was down 39.5% year-over-year (vs. down 23.3% year-over-year in June).

As of the end of June, there were roughly 14,500 trucks in the 1Q:07 backlog, and fewer than 5,000 for 2Q:07 and beyond.

“Our sense is that any remaining orders for '06 trucks would be
the result of OEMs filling out their build slots for 1Q:07, when a
limited number of '07 trucks with '06 engines can be built,” Bear Stearns said.

Class 5-7 orders for July were 19,200 (vs. Bear Stearns’ 20,000-23,000 forecast), up 34.1% year-over-year (vs. up 23.6% year-over-year in June).

“Our sense is that the OEMs and dealers are driving a
"pre-build" in Class 5-7 ahead of January '07 (in contrast to a pre-buy) that's starting to weigh on residual values,” Bear Stearns said. “Either way -- pre-build or pre-buy -- it will likely prove disruptive to '07 production.

“We believe investors greatly underestimate the magnitude of the pre-buy. The average age of the public TL fleet declined from roughly 28 months in '02 to 17 months at year-end '05. Conservatively, we project it declining to 14 months by year-end '06. While the '06 ‘precipice’ in orders is turning out to be more gradual than expected, directionally it doesn't change our outlook on '06 and '07.

“We’d continue to lighten up in truck equipment. Monthly orders
drive the stocks, and our best sense is that, with Class 8 orders likely to remain under pressure through year-end, it'll be increasingly difficult for the Class 8 names to outperform --particularly as we enter the typical order season in September, when we expect order intake to still be weak. We think the market will be even more disappointed when Class 8 orders don't rebound later this year.”

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