January Class 8 orders remain low but outperform year ago

Peterbilt engines

Preliminary Class 8 truck orders rose 10% in January compared with the same month a year ago, but the 17,700 bookings trailed the fourth-quarter-2019 average as fleets place orders only for equipment they absolutely need.

“The Class 8 market remains in equilibrium with orders well matched to production, stuck at close to replacement demand levels,” said Don Ake, vice president of commercial vehicles at FTR Transportation Intelligence.

January orders, which will be finalized later in February, declined 12% from December 2019, according to ACT Research. Orders over the past 12 months total 181,000, according to FTR. That is less than half the bookings of late 2018, when pull-ahead orders contributed to a backlog exceeding 400,000 units.

The persistent order slowdown began in November 2018. January was the first time in 15 months that year-over-year orders were in positive territory, ACT said.

A five-year look at Class 8 truck orders shows the dropoff that began in November 2018 after peaking earlier in the year. (FreightWaves/SONAR/Orders.CL8)

“Weak freight market and rate conditions, as well as the residual backlog cushion, continue to bedevil new Class 8 order activity,” said Kenny Vieth, ACT president and senior analyst.

Layoff correlation

The shrinking backlog of trucks awaiting production fell to 123,500 at the end of 2019, less than half the level of a year ago. That has led to production cuts and layoffs by manufacturers and suppliers.

“We’re just doing our best to try to plan our business so that we can right-size our expenses [and] make the best forecast,” Tom Linebarger, CEO of engine maker Cummins Inc. (NYSE: CMI), said on a fourth-quarter earnings call with analysts Tuesday. “We’re just calling it like we see it.”

Cummins laid off 2,000 employees globally in January, booking a $119 million pretax restructuring charge that it expects will result in $250 million to $300 million in cost savings this year.

Build to order

PACCAR Inc. (NASDAQ: PCAR), which makes Kenworth and Peterbilt trucks, told analysts it expects its first-quarter orders to be 5-7% below the January-March period a year ago.

“We make sure that what we’re building has a firm order with a customer name on it, and so we’ve been able to adjust our build rates aligned with our orders,” CEO Preston Feight said on the company’s fourth-quarter earnings call Jan. 28.

PACCAR claims 34% of the industry backlog, four points above its 30% U.S.-Canada market share at the end of 2019. It has 2-2 ½ months of dealer inventory “so we are in pretty good shape that way,” Feight said.

Most expect the 2020 U.S. and Canada Class 8 truck market to range between 230,000 and  260,000 vehicles compared with 309,000 retail sales in 2019, the second-best year on record.

“More is better, but 240,000 is not a bad market after these last two years of very, very high market,” Mack Trucks President Martin Weissburg told FreightWaves.

FTR’s Ake agreed.

“The market is pausing to take a breather after a couple of banner years, and the equipment market is stagnant as a result,” he said.