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Heavy Duty Truck & Trailer Executive Summary


 

September showed the largest and most rapid deterioration in the economy year to date. Even though the overall economy grew for the 83rd consecutive month, key indicators of future activity showed significant decline. The Purchasing Manager’s key manufacturing index fell from 49.9 to 43.5. This is the largest decline and the lowest level since October 2001. The Conference Board’s key economic indicators covering leading, coincident and lagging indicators all turned negative. Leading indicators are off over 2% for the year. This indicates the likelihood of further economic contraction before we see an upturn. On the positive side the non-manufacturing economy continues to expand. Additionally unemployment remains high but is unchanged at 6.1%. Consumer confidence was positive in September but deteriorated rapidly when the credit crisis was amplified by the proposed and finally legislated “Bail Out”.
Key factors used by the “Fed” and Standard and Poor’s to measure an economic turnaround remain mixed. These factors include:


• Average total annualized new home sales of 5.5 million


• Average home price of $250,000


• Spread between the Federal Fund rate and the LIBOR (London Interbank offered rate) less than .75%


•Price of a barrel of oil below $100.00


Currently the average home selling price is at $255,000. Through August new and existing home sales were on pace to reach 5,000,000 units. For the week of October 3rd the spread between the Federal Fund rate at 2.00% and the LIBOR was over 3 percentage points, while the price of oil recently has fluctuated between $90 & $110.


The heavy truck industry remains in economic doldrums. Although there are signs of an upturn, they are less positive when put in historic perspective. New class 8 truck sales have shown an increase the last three months but have been mostly Freightliner and Navistar. All other truck OEM’s continued to report a decline. Sales overall when compared to 2007 are still below a year ago. Truck freight has also shown a pick up June through August but turned down again in September. Year to date truck moved freight is down 2.2%. Even with fleet failures and significant fleet size reductions there continues to be too much capacity. The general outlook is for no significant pick up in freight until the 2nd quarter of 2009.
Recent surveys by Stephen’s Investment Banking and others indicate that fleets are not expecting a pre-buy in 2009 or 2010. They learned a hard lesson in 2006-07. Future purchases will be based on economic activity. Some trucking industry suppliers are predicting class 8 builds for 2009 to be in the 260,000 to 280,000 unit range. This appears to be out of line by 20% to 30% versus what fleets expect to buy. Our current outlook is continued caution and careful scrutiny of any suggested sustainable ramp up in the class 8 build before the end of the 2nd quarter of 2009.
 

If you would like to read the rest of this article contact steve.caudill@businessperspectives.net.

 



This summary is offered for information only. It is compiled from several governmental and industry resources. The origin of the information is given where possible. Any actions taken as a result of this summary is the sole responsibility of the readers. Business Perspectives takes no liability for the use of the information above its informational use. The opinions expressed are the sole property of Business Perspectives LLC and should not be redistributed or duplicated.
 

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