by Ken Kremar
Demand for Class 8 heavy trucks has been on the rise throughout 2004. Propelled by pent-up replacement demand, solid gains in key truck-buying markets, and a dramatic improvement in motor-carrier freight volumes, U.S. sales of heavy trucks through September had surged ahead by a whopping 43.1% from the same 2003 stretch.
Major for-hire and private fleets have been leading the charge. The 100 largest for-hire and private carriers operate more than 350,000 Class 8 tractors. When these major fleets begin to buy in a big way, truck manufacturers have a hard time curbing their enthusiasm. But major fleets are not the only companies buying trucks, which is adding to the delight. The economic recovery has spurred mid-sized and smaller for-hire private fleets and vocational markets to step up their capital spending.
We have every reason to expect 2004 to close on a positive note. New orders for Class 8 trucks exceeded 284,000 units through September, compared with less than 142,000 units for the same period last year. So, truck makers had lots of business on the books at the end of the third quarter. In addition, order backlogs have been expanding. The backlog of heavy-duty trucks was reported at 158,225 units, versus just 55,175 units at the end of last year's third quarter.
The U.S. economy should end 2004 in decent shape, with key truck-buying markets performing at least admirably—and perhaps surprising us on the upside. Moreover, truck sales should get an added push, because the “bonus depreciation” provisions of the 2001 and 2003 tax bills are scheduled to expire at the end of 2004. We therefore expect truck owners to accelerate purchases to qualify for bonus depreciation before it expires.
Even better news, the recovery in heavy trucks should continue through next year. There will be enough underlying strength in the U.S. economy and key truck-buying markets to keep the demand for new equipment moving forward through 2005 and into 2006, as older units are replaced and capacity is expanded. We are anticipating some help on the fuel front as crude oil prices decline by more than 30% between now and the end of 2007. Diesel fuel prices will decline along with them at least part of the way, which will help bolster motor carriers' financial performances. But looming EPA diesel engine regulations—set to hit the market in 2007—will distort buying patterns, pushing up sales in 2005–06 and then dragging them down in 2007. We expect retail sales of heavy trucks to reach 200,000 units this year, an increase of 40%. Sales will then rise an additional 25% in 2005, to 250,000 units, and 8% in 2006, to 270,000 units, before they tumble 26% in 2007, to 200,000 units.
