Class 8 truck production could fall to less than half of 2019

Kenworth truck on production line

Class 8 truck production, originally projected to be off record highs from 2019 by 30%, could be in free fall if manufacturing plants close because of the coronavirus pandemic.

ACT Research, which estimated 2020 production of new tractors and trucks at 224,000 as recently as February, dropped its estimate to 209,000 earlier in March. Its most recent projection is 170,000, based on its expectation of a U-shaped economic recession.

That may not be deep enough, ACT President and senior analyst Kenny Vieth told FreightWaves on Wednesday.

Recession scenarios

ACT forecasters were modeling an L-shaped recession, in which a dramatic drop would result in  lower demand without a return to higher production levels. The U-shaped recession model that resulted in the 170,000-unit estimate called for a steep drop in the second quarter followed by a nearly equally strong rebound in the fourth quarter.

In the last four economic recessions, dating to 1979-1982, peak-to-trough production was 52%-53%, Vieth said.

“As a rule of thumb, each 1 percentage point increase or decrease in the gross domestic product [GDP] equals 10,000 trucks above or below replacement demand,” Vieth said.

Based on a projected 15% drop in GDP in the second quarter, the industry would shed thousands of units, most of which would not be recovered in the near term.

“This industry built so much capacity in 2019 that this helps burn through inventory to get the market to equilibrium, but it’s hard to do when no one is ordering new trucks,” Vieth said. “It’s a good time to take a stay-cation.”

Production decisions

As of midday Wednesday, no U.S. Class 8 production had been canceled. In Pennsylvania, where Mack Trucks builds all of its highway and off-highway models for North America, state officials considered ordering all non-essential businesses to close to prevent the spread of coronavirus.

“Given where we are with inventory, it is hard to see production of heavy-duty trucks as an essential business,” Vieth said.

In Europe, TRATON Group’s Scania subsidiary said it was halting production. TRATON parent Volkswagen AG said Tuesday it would stop producing cars in Europe. Daimler AG’s Mercedes-Benz, BMW and Toyota unit followed suit.

A spokeswoman for industry leader Daimler Trucks North America said on Tuesday “it’s hour by hour at this point.”

Volvo Group said its Volvo Trucks North America (VTNA) and Mack assembly plants in Virginia and Pennsylvania were running, along with its engine plant in Maryland. A new Mack facility in Virginia where it plans to build the MD Series of midsize trucks has not started production.

AB Volvo in Sweden issued a profit warning Tuesday because of the coronavirus pandemic.

Car production cuts

Detroit-based carmakers were shutting down production following discussions with the United Auto Workers (UAW), which demanded a two-week hiatus to stall the spread of coronavirus.

General Motors Co. (NYSE: GM), Ford Motor Co. (NYSE: F) and Fiat Chrysler Automobiles (NYSE: FCAU) said Wednesday they would suspend U.S. production until March 30 for deep cleaning of their plants. and reevaluate on a week-to-week basis after that.  About 150,000 workers are affected. The United Auto Workers (UAW) pushed for the closing

Earlier Wednesday, FCA closed the Michigan plant where its Ram pickup trucks are made because a worker there tested positive for the COVID-19 virus.

Honda (NYSE: HMC), whose workers are not represented by the union, became the first automaker to halt production Wednesday, idling 27,600 workers at 12 North American factories, including transmission and engine plants in Alabama, Indiana, Ohio, Canada and Mexico. Honda said the six-day shutdown due to a drop in demand.

Tesla Inc. (NASDAQ: TSLA) continued building electric cars on Wednesday in Fremont, California,  according to multiple media reports. That was despite “shelter-in-place” guidance from Alameda County where officials determined Tesla production was not an essential business during the coronavirus crisis. 

Tesla officials told workers to report to the plant if they were healthy and to stay home if not. 

Toyota Motor Corp. was still producing cars and trucks in the United States, though it had shuttered plants in Europe on Tuesday. It also closed dealerships in some countries.