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Orders for Class 8 Hit a Six Year Low

“The Class 8 market is stuck in a holding pattern at the bottom end of this cycle,” said Don Ake, Vice President of Commercial Vehicles at FTR. “Fleets are cautious as freight demand has cooled off this year. There are enough trucks to handle freight right now with carriers in a wait-and-see mode before adding trucks or replacing older units.”

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Every year, Class 8 orders usually decline at the approach of summer, so it came as no surprise to see the sales figures drop seasonally this year as well.

Every year, Class 8 orders usually decline at the approach of summer, so it came as no surprise to see the sales figures drop seasonally this year as well.

By the start of the summer, total sales had reached a disturbing six-year low. According to ACT, the industry hit that six year low in June, with orders for only 13,100 Class 8 trucks, the fewest orders since the third quarter of 2010 and a more than 30 percent drop in orders compared to last year.

According to another industry report from FTR, the order activity in June 2016 was the lowest monthly total since 2012 and the worst June since 2009. Sales were low in 2009 due to the U.S. economic recession and the resultant slows in freight transport. FTR anticipates that Class 8 orders will remain low throughout the summer months – with slow orders impacting original equipment manufacturers (OEM). However, there is some hope as Ake believes things will look up by the end of the year.

“We can expect this level of activity for a couple more months,” said Ake. “We do anticipate higher orders later this year. However, the volume of orders will be determined by the strength of the economy and freight activity at that time.”

The drop in orders has already impacted production facilities at both Volvo Trucks North America, a unit of the Volvo Group, and Daimler Trucks North America (DTNA), a unit of Daimler AG, both of whom announced cuts across their North American production facilities. Together, these two giants control 60 percent of the market.

Volvo first announced layoffs in December 2015, with some cuts made earlier this year. The last round of cuts eliminated roughly 500 jobs, a sacrifice that company spokesman John Mies said was necessary to reduce production in the early August time frame.

“We regret having to take this action, but we operate in a cyclical market, and we have to adapt to market demand”, Mies said.

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Portland, Oregon-based Daimler Trucks plans to lay off 1,240 workers in the U.S. and Mexico through the end of 2016. Although its market share remains strong, growing from 39.4 percent last year to 41.9 percent this year, the layoffs will hit North Carolina the hardest, where the company is planning to eliminate 800 jobs.

The used truck market has also been affected by the drop in sales, with the average price of used trucks remaining unchanged and the average age of vehicles increasing.

“All three market segments saw declines, with auction and wholesale hit the hardest,” said Steve Tam, ACT’s Vice President of the Commercial Vehicle Sector. “Dealers are reporting that used truck inventories continue to be high and are causing used truck prices to continue falling.”

Some argue that the new regulations from the Environmental Protection Agency (EPA) for increased fuel economy are to blame for the drop in sales. However, a New York Times article said that the cost of improving vehicle fuel-efficiency technology is only in the $10,000 to $12,000 range for the largest trucks and even less for smaller trucks. EPA estimates suggest that the added cost could be recouped in fuel savings after 18 to 24 months.

There are indications that it may get better next year. According to the most recent ACT For-Hire Trucking Index from ACT the demand for Class 8 trucks recently rose faster than supply. Tam noted that the spike in demand was only the second time in 10 months that freight volumes showed any meaningful increase. Adding that only time will tell whether this is the beginning of a trend or a temporary or transient anomaly.

However, with major manufacturers closing their production facilities, it is not likely that nation-wide Class 8 orders will increase dramatically anytime soon. Slow sales of new trucks will likely carry into 2017, while used truck dealers can anticipate a boost in both sales and average sale prices as inventory clears out.

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