Class 8 net orders on the upswing in Q4, says ACT

ACT said that total net orders for Class 8 vehicles and commercial trailers “surged” during the fourth quarter of 2010, signaling that trucking fleets are increasing the replacement levels of vehicles which have been put off to a large degree the last two years.

In ACT’s most recent edition of its North American Commercial Vehicle Outlook, the firm projects full-year 2010 Class 8 production to come in at about 154,500 units for a 31 percent gain over a weak 2009 and remains below normal replacement demand. The firm added that it expects demand to continue over the next two years, calling for 2012 and 2013 production to top 300,000 units. On the trailer side, ACT expects production to hit annual growth rates north of 50 percent in 2010 and 2011 compared to a weak 2009.

“The combination of rising freight volumes, improving trucker profits, rising used equipment values and the oldest North American fleet on record have led to a resurgence in demand for new commercial vehicles,” said Kenny Vieth, president and senior analyst with ACT Research, in a statement. “The biggest constraint in 2011 will be the ability of equipment manufacturers and component parts suppliers to ramp up production fast enough. As a result, the upcycle is expected to last through 2013.”

In an interview with LM, Vieth said that “all the stars are aligning” when it comes to Class 8 demand and the current environment.

As 2010 progressed, Vieth said there was a continued shrinkage of Class 8 fleets, with fewer Class 8 trucks on the road at the end of 2010 than there were at the beginning of 2010.

“We had growing freight volume throughout 2010, especially in the first half of the year,” said Vieth. “With freight growing and the tractor supply falling, trucker profitability rose. And used truck prices went up throughout the year. In December 2009, the average used truck price was roughly $35,000-to-$36,000, and at the end of 2010 that price was more than $43,000.”

This showed there was meaningful asset appreciation over the course of the year, coupled with rising rates and higher used equipment values, which Vieth said had led to lenders easing up on loan terms, as well as fleets aging, too.

What is happening now is rising, pent-up replacement activity, said Vieth.

“At a transportation conference I attended in November, many trucking executives indicated they were going to kick up their capex plans to maintenance levels, where they have been below maintenance levels the past few years,” said Vieth. “In the middle of 2010, there were signs of increased trucker productivity and freight trends were looking good, but there were mixed signals regarding the economy. But trucker confidence is rising, and they feel they can now make these investments and be able to pay for them, because market conditions are now conducive for that type of activity.”