Demand revs up for heavy trucks

The Japanese earthquake and tsunami continue to impact the automobile industry and the global economy, but demand for heavy trucks is driving up production.

June 6, 2011   by PLANT STAFF

TORONTO: The Japanese earthquake and tsunami continue to impact the automobile industry and the global economy, but demand for heavy trucks is driving up production, according to the latest Global Auto Report by Scotia Economics.

The report shows global vehicle sales softening in May, with purchases roughly unchanged from a year ago – a significant slowdown from a 6% increase during the previous four months. A downturn in global output also accelerated during the month, further dampening global economic activity.

Scotia Economics notes the slowdown is temporary, and it has raised third-quarter production to 18% above a year earlier. It says Canadian plants will benefit most from higher output in the July-September period, with production expected to jump 21% year over year, compared to only a 3% in the first half of the year.

“Vehicle sales in the US slumped below an annualized 12 million units in May, undercut by a shortage of Japanese models on dealer lots,” said Carlos Gomes, senior economist and auto industry specialist at Scotia Economics. “During the previous four months, purchases had consistently remained above 13 million units. Excluding Japanese brands, sales continued to advance, climbing 7% above a year earlier, led by double-digit increases for South Korean brands.”

He says vehicle sales also weakened in Canada last month, with volumes slumping to an annualized 1.4 million units from an average of 1.67 million in March and April. Japanese automakers accounted for most of the decline.

“A shortage of vehicles will continue to hold back sales through the summer, but a rebound is expected once dealer lots are restocked later this year,” says Gomes.

Heavy truck demand has warmed up across North America since bottoming in early 2010, with production recently climbing to a four-year high. The report says further gains are ahead as the trucking industry heads into its replacement cycle. Despite slower economic growth in the US, the North American trucking market can expect to further double-digit gains next year.

The three largest global heavy truck manufacturers now expect to produce roughly 300,000 vehicles in North America this year – a level more in line with output over the past decade, and up from only 202,000 in 2010. However, demand is outstripping supply, lifting the industry’s order backlog to its highest level since late 2006.

“The sharp increase in heavy truck assemblies reflects a rush of new orders placed by fleet owners attempting to respond to rising freight demand by upgrading and increasing the size of their vehicle fleet,” says Gomes. “This represents a sharp reversal from recent years, when the trucking industry underwent a sharp downturn with more than 6,000 trucking companies – mainly smaller carriers – going bankrupt during the 2007-2009 global economic downturn.”

He says the industry’s rationalization is estimated to have reduced North American trucking capacity by roughly 13%.

Now heavy truck manufacturers are adding capacity across North America, including Paccar Du Canada Ltee., which has ramped up assembly at its Sainte-Thérèse, Que. plant to more than 600 units per month, from an average of 470 trucks last year.

And Navistar will decide by the summer whether it will re-open its heavy-duty truck plant in Chatham, Ont. as it deals with its declining market share. Production at the facility ceased in June 2009 in the midst of slumping demand for commercial trucks.

The report notes Canadian heavy truck output has dropped from 74,000 units in 2006, to only 5,600 vehicles in 2010 giving Canada just 2% of North American heavy truck assemblies, down from 10% in 2008.

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