US truck/trailer market will rebound in 2008

Attendees at the Canadian Transportation Equipment Association's annual manufacturers conference got some advice about where they can find good prices for truck/trailer equipment: Go south to their neighboring country that continues to produce massive multi-billion-dollar deficits.

“US prices started looking cheap in Canada in 2006, and that most likely will remain the case for 2007 as the Canadian economy is enjoying a cash surplus,” said National Truck Equipment Association market data and research director Stephen Latin-Kasper . “Canadian money is getting more valuable, and US money is getting less valuable. More US shipments of work truck equipment are going north. Will that continue? From the US viewpoint, Canada will remain a growth opportunity for equipment sales in 2007 as long as the foreign exchange rate remains favorable.”

As the United States' top trading partner, Canada's shipments going to the US in work truck/trailer industry products in 2005-2006 increased slightly to $12.6 billion from $12.2 billion. US exports to Canada increased to $12.3 billion from $10.3 billion.

Sales of conventional straight truck chassis have been the major growth area in Canada. Retail sales increased almost by a factor of four in conventional straight truck chassis in Canada between 2002 and 2006. By mid-2006 unit volume had increased to 2,200 a month from 1,000 units a month in 2003. In the United States, consumption of conventional straight truck chassis increased to 27,500 units per month by mid-2006 from 12,500 units per month in 2002.

Growth opportunities within the United States for the work truck industry generally will be in the utilities industry and specific segments of the construction industry, Latin-Kasper said. The downward trend of electric power generation between 1995 and 2003 has ended.

“The new longterm trend in recent years is basically for significant growth,” he said. “The longterm, as in the next 10 to 15 years, pattern will be a growing market for trucks and truck equipment in utilities.”

For all US construction in 2007 — public, private, residential, commercial — growth will decline by 3.9% because the residential sector consists of such a large amount of the total. State and local government spending, however, will continue to grow by 4.4% in 2007, mostly for highway and street projects. “I was in Calgary recently and saw the entire west end of the city under highway construction,” Latin-Kasper said. “And that's happening throughout the United States as well. This will continue throughout 2007.”

As expected, in part because of the huge pre-buy of truck equipment meeting 2007 EPA regulations, US retail sales of Class 8 trucks will drop to 187,000 in 2007 from 283,000 in 2006, Latin-Kasper said. The medium duty market also will take a hit, but not as severe. For Classes 4-7, projected total 2006 sales of 260,000 will drop to 230,000 in 2007. Projected sales of Classes 1-3 in 2007 total 2,350,000, down from 2,475,000 in 2006.

“The prebuy in 2006 is making the downturn in our industry a done deal,” Latin-Kasper said. “The good news is that the decline will not last long. An increase in sales for all classes of commercial trucks in 2008 and continuing into 2009 will fuel a strong rebound for the truck market.”

Balancing the economic pros and cons of the US economy, Latin-Kasper said the possibility of a recession is unlikely.

“Lack of consumer spending will put the brakes on the US economy as we move forward into 2007, but in all likelihood there will not be a recession,” he said. “One nagging question at this point is the yield curve, which at this point is very close to an inverted position. When short term interest rates continue to remain higher than long term interest rates, that is a signal of significant imbalances in the economy. Looking at US economic history, every inverted yield curve was followed by a recession.”

Real GDP growth in Canada will be 2.7%, about the same as the United States, Latin-Kasper said. In contrast, Mexico's economy is likely to outperform US and Canadian economies in 2007 with a projected GDP growth of 3.7%. “Mexico's construction industry will grow 4.2% and wholesale distribution will be at 4.5%. You might want to be looking south of the border for opportunities in 2007, as well as Russia, Australia, and Brazil.”

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