Heavy Duty Truck & Trailer
The Economy in the U.S. and Canada continued to contract in
January with unemployment reaching 7.6% in the U.S. Layoffs
occurred all across the economy accept in healthcare and
food production. These segments continued to show strength.
The ISM Purchasing Managerís Index for manufacturing
improved over December by 2.7 percentage points. At 35.6 it
still shows a significant contraction with an index of 50
being normal. The non-manufacturing index improved to 42.9 a
2.8 percent improvement over December. This also shows a
contracting economy with 50 being normal.
The Conference Boardís index of Leading Economic Indicators
(LEI) actually turned positive in January. This is a false
improvement as almost all the improvement is due to the
excess liquidity that the Federal Reserve and the U.S.
Treasury dumped into the economy. The coincident indicators
and lagging indicators remain significantly negative.
The major negative factors that continue to impact the
economy are consumer confidence, currently at a record low,
and credit. Although the Fed and Treasury have basically
strengthened bank liquidity, lenders remain
ultraconservative. Additionally, high quality borrowers to
whom the banks would normally lend are not borrowing. The
savings rate in the country has nearly doubled over the last
six months as consumers have become increasingly
The trucking industry has followed the decline in the
economy. OEM truck production is off nearly 70% since the
peak in 2006. OEMís have adjusted accordingly to demand.
Paccar has basically shuttered the Kenworth Renton plant,
greatly curtailed Kenworth Mexico and the Kenworth
Chillicothe facility. This week they announced the continued
closing of Peterbilt Madison, which is on strike, until
2010. Peterbilt Denton will pick up the slack but has also
been significantly reduced in build rate. Freightliner has
also taken aggressive action. Mt. Holly and Portland
operations are all but idled and Cleveland N.C. has been
reduced from 2700 employees to 700. Freightliner is in the
process of moving all West Coast production to Mexico. Volvo
has reduced production at their main Virginia production
plant to 50 units per day from 70. International is weighing
its options. It recently announced production cuts at its
Chatham, Ont. and Springfield Ohio plants.
The truck supply base reflects the actions of the OEMís with
most reporting production off 50% or more since 2007. The
large suppliers remain healthy but many in the molded
plastic and metal stamping and fabrication areaís are in
Larger fleets and LTL carriers remain strong as many have
significantly reduced their fleet size to reflect demand.
Only YRC of the major LTL carriers reports financial
problems. Reduced fuel costs and driver turnover have
greatly benefitted truck operators.
The outlook for 2009 remains unclear. Key indicators like
the LIBOR/federal fund rate spread remains near 20 basis
points. Anything below 75 basis points reflects a healthy
lending environment. Oil remains below $50 per barrel. This
results in low energy costs which help the consumer. Housing
starts remain at an all time low and auto sales are
currently at a rate of less than 10 million units annually.
Housing starts need to be at 1.4 million annualized and
existing and new home sales need to exceed 4.5 million
annually. Currently home sales are annualizing at 4.0
million units and housing starts are at 1,000,000
annualized. Auto sales need to exceed 15 million units
annually to result in a healthy market. The key to the
economy turning rests with the stimulus package currently
moving through Congress. A real impact will not be felt
until 6 months after this package is implemented. Our best
estimate is that their will be no real improvement until the
4th Quarter of 2009.
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