In the June issue of The Truck and Trailer Outlook Report, FTR Associates outlines for its subscribers a significantly reduced Class 8 production forecast beginning in the second half of 2012. The new forecast shows growth of only 3.4% this year with a decline of nearly 11% in 2013.
Internal analysis that FTR has done over the last few months has been pointing to a possible slowdown and recent market data has highlighted that concern. The primary concern is the sluggish U.S. economy, but other factors weighed on FTR’s decision to quantify the expected drop off in stark terms. Bill Witte, principle of Witte Econometrics and advisor for FTR, points out that the U.S. economy did not fair very well during much of 2011 and is not expected to perform nearly as well as once predicted through the balance of 2012 and into next year. Further exacerbating the situation is the fact that as freight growth has cooled, fleets have pulled back on Class 8 orders to a level much lower than current OEM build rates.
“OEMs continue to manufacture trucks at a rate unsustainable, in our view, based on the U.S. economic environment and the current Class 8 order activity” states Eric Starks, president of FTR. “In light of this, as well as our less than positive view of the economy, we have significantly reduced our forecasts. Production levels for 2013 may be reduced further if there is no adjustment made to near-term build rates. The economy is just not performing well enough to generate greater demand for new vehicles and unless there is a marked change, we expect softer demand for Class 8 vehicles at least through next year.”
Of major concern noted by FTR is the oversupply of new inventory in the market. This will only continue to worsen if OEMs continue to build at current levels. Retail sales activity is expected to be flat next year from 2012 levels. This suggests that the underlying demand in the equipment market will be healthy, but not growing. However, the need to “right size” inventory will see production levels fall until the inventory situation gets under control.