Class 8 truck orders remained strong in October at 42,500 units following September’s record 53,700 bookings. But slowing profits at truckload carriers may soon throw orders into reverse.
“We view the strength as transitory and reflective of pent-up demand pouring in upon opening of more orderboards,” Cowen machinery and OEM analyst Matt Elkott said in an investor note. “It could include a bit of double-ordering as some customers look for ways to work around long lead times.”
The typical wait time for an order to be built is about nine months. After keeping the clamps on orders because of supply chain uncertainty, OEMs fully opened 2023 orderbooks. Fleets place two orders knowing they face no cancellation penalty unless materials have been ordered to build the truck.
Rebounding diesel prices, still elevated labor costs and lower fleet profits from softening freight rates may combine to push orders down to their 10-year average of about 25,000 a month, or lower, Elkott wrote.
Fleets want to replace older equipment
But the aging of the fleet because of supply-constrained production bodes well for replacement demand. On a rolling 12-month basis, Class 8 orders total 271,000 units, FTR Transportation Intelligence said.
“We’ve been capacity constrained for the last three years or so. So most customers that I talked to want to have more trucks and they want to have them quicker,” Paccar Inc. President and CFO Harrie Schippers said on the company’s Oct. 25 conference call with analysts following strong third-quarter earnings.
Paccar, the parent of Kenworth, Peterbilt and Europe’s DAF Trucks, said orderbooks are filled through Q1 2023.
“We’re taking strong order intake into the second quarter and into the second half as well,” Paccar CEO Preston Feight said on the call.
Optimism for Class 8 truck orders despite looming freight recession
A mild to medium freight recession is baked into ACT’s forecast. Still, OEMs should expect a good first half of 2023, said Eric Crawford, ACT vice president and senior analyst.
FTR Transportation Intelligence pegged October orders slightly higher than ACT at 43,200 units. It too is optimistic in the near term.
“October was the turning point for the Class 8 market,” FTR commercial vehicle analyst Charles Roth said. “While we face headwinds in the freight market, overall fleet sentiment remains optimistic.”
After two strong months, Roth said he would not be surprised to see a “gradual decrease month over month in net orders as we close out the year.”
Class 8 truck stock inventory scarce
Even if fleets slow direct orders, retail dealers starved of new vehicles for nearly two years would welcome additional inventory.
“I haven’t had an unsold stock unit on my lot since January of 2021,” said Steve Bassett, president of General Truck Sales, with stores in Indianapolis, Muncie, Indiana, and Toledo, Ohio. “I don’t anticipate that to change for the next couple of years. If I do have a straggler, you’ve got to buy what I’ve got and not what you came in to buy.”
Engine maker Cummins Inc., which provides powertrains for practically all manufacturers, sees positive order trends as supply constraints ease.
“We continue to watch the broader economic indicators and what that may mean over time. Right now we’re continuing to work to increase production rates and see strong underlying demand,” Cummins CEO Jennifer Rumsey told analysts Thursday on the company’s Q3 earnings call.
“We project that the market will remain strong into next year because they’ve been using the trucks at a high rate,” she said. “They’ve not been able to replace at the level that they want to.”
Related articles:
Class 8 truck orders set monthly record in September
Class 8 bookings rebound in August as OEMs crack open order books
Won’t get fooled again: Truck manufacturers avoid overbooking Class 8 orders
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