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Wells Fargo: Trucking Industry To Grow; Replacement on Absolute Need Basis

September 19, 2012, 07:34 AM
Filed Under: Trucking

According to the Wells Fargo Equipment Finance Trucking Quarterly Report for Q3 2012, improved performance in new home construction should help support growth in the transportation industry during the second half of the year.

The report states that truck replacement demand potential remains significant, however truckers continue to hesitate in purchasing new trucks largely because of the lack of visibility around the looming fiscal cliff and election uncertainty.  The report indicates that dealers suggest that truck purchases will likely remain subdued until these uncertainties are resolved.

To follow is a brief summary of the latest survey results:

  • Lead times for a new truck by manufacturer appear to be approximately: 6-9 weeks for Freightliner, 7-13 weeks for Navistar, 3-6 weeks for PACCAR, 8-12 weeks for Volvo.
  • Average industry order-to-deliver lead times contracted by about one week during the past month driven mostly by contraction at Daimler. Daimler’s backlog is said to be full for Q4 2012 with holes in Q3 2012—this echoes recent commentary from the company. While other OEMs have recently announced production cuts (PACCAR and Volvo both announcing cuts in the 15% range), Daimler appears content to produce through its backlog.
  • Truck OEMs appear to be holding pricing. There does not appear to be much discounting taking place, even as backlogs have contracted significantly.
  • Feedback suggests that Navistar’s change in engine strategy has not yet had a significant impact on market share.

The report also provides an economic and commercial vehicle forecast by Wells Fargo Securities Associate Analyst Michael Busche in which he says, “We concur with our machinery analyst, Justin Ward, that truckers will only replace trucks on an absolute need basis. Monthly net orders have been running below the estimated “replacement rate” for several months in a row. The average age of class 8 tractors is at an all-time high and cannot be explained entirely by improved useful life or lower utilization rates. Quite simply, we think there has been multi-year underinvestment in equipment and as customers begin to face vehicle downtime, higher maintenance costs and less fuel efficiency, we think new vehicles can be pulled into the system. That said, new commercial trucks are 40-50% more expensive than pre-2007 models; the last time there was a surge in truck buying. Additionally, buyers are contending with emission equipment technology and related maintenance changes that occurred in 2007 and 2010. We think these factors could limit traditional investment options.”

Read the full Wells Fargo Equipment Finance Trucking Quarterly Report for Q3 2012

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