Navistar confirms next phase in Transportation Recession.
After orders by trucking companies for Class-8 trucks – the heavy trucks that haul trailers across the country – collapsed by 81% in July compared to July last year to the smallest number of orders since 2010, deepening a trend that has gotten worse all year, it would only be a matter of time before truck manufacturers announce production cuts and ultimately layoffs.
These heavy-truck makers – Peterbilt and Kenworth, divisions of Paccar; Navistar International; Freightliner and Western Star, divisions of Daimler; and Mack Trucks and Volvo Trucks, divisions of Volvo Group – have been eating through their historic backlog, accumulated during the record year of 2018, and they’re still delivering these trucks at near record pace, but that backlog is thinning out, and we’ve been waiting for the inevitable announcements of production cuts.
So now it starts – not with production cuts for Class-8 trucks but with production cuts for Class-5, Class-6, and Class-7 medium-duty trucks.
Navistar International [NAV] confirmed to FreightWaves that it will be cutting production of medium-duty trucks at its Springfield, OH, assembly plant, which builds trucks for Navistar’s brand International and for GM [GM]. The company blamed “the cyclical nature of the business.”
“This cycle is normal for our business, and this is not a shift of production to other locations,” the spokesperson told FreightWaves. But the company declined to disclose if the production cuts involve layoffs.
Navistar also builds medium-duty trucks along with Class-8 trucks at its assembly plant in Escobedo, Mexico, but the spokesperson declined to disclose if production is impacted at that plant.
Inventories of unsold medium-duty trucks have surged 30% to 55,400 units in June, and the current order backlog is still at about 63,500, after the ordering binge last year, according to ACT estimates, cited by FreightWaves. And orders fell 20% in June,
“These medium-duty trucks support a lot of service businesses, and consumer business is doing pretty well,” said ACT president Kenny Vieth, cited by FreightWaves. “This is a trimming of the sails.”
During Navistar’s earnings call on June 4, CEO Troy Clarke acknowledged the “moderating” phase in the freight sector, but gave no indication of production cuts. He was still gung-ho about production and the backlog:
Now the freight market certainly seems to be moderating, but I think the question is, is it shifting to a lower gear or not? It’s really hard to tell because seasonal shipping, which typically happens between July and September time frame, actually has increased, so we’ll have to see how that works its way through the balance of the summer.
But again, I think the economic fundamentals are still there that support not only the backlogs, but I think some opportunities yet to be discovered in 2020.
So these opportunities to be discovered are cuts in production of medium-duty trucks.
In terms of Class-8 trucks, Paccar expressed confidence in its earnings call that the industry backlog would get it through 2019 and into 2020 without production cuts, despite the collapse in orders. Volvo AB and Daimler AG, during their earnings calls in July, indicated that, if necessary, they would be prepared to implement production cuts later this year.
So Navistar became the first truck maker to cut production and kick off that part of the Transportation Recession. During the last Transportation Recession in 2015 and 2016, after the backlog thinned out, truck maker after truck maker announced production cuts and finally layoffs. This ricocheted through the supply chain, hitting engine maker Cummins and others.
And this time around, the U-turn in trucking – given the collapse in orders, the decline in freight shipments, and rising overcapacity among truckers – looks to be harsher than last time.
The order backlog is still feeding truck makers, but time is running out. Read… Heavy-Truck Orders Collapse Stunning 81%. Lowest Since 2010
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Still a great many transport accidents on the highways taking out the rigs…
I guess they are not getting replaced.
The current economy reminds me of a Tesla on autopilot. The driver (consumers, investor) have been lulled to sleep by the claim that nothing can go wrong. Personally Wolf, I would be more relieved if you had announced that Class 8 production cuts were here! The end is the beginning in the truck market industry. The light ones make the final deliveries and obviously the next headline will be inventories skyrocketing for all kinds of commercial goods. Corporate margins will follow in the opposite direction.
‘opportunities to be discovered’ yes and the 159m settlement loss plus vdub getting a copy of the bayer news letter.. trimming the sails or storm jib?
I suspect farmers are not celebrating trade wars and spring flooding by buying new tractors.
Cummins bought a green company in Silicon Valley last year that converts their drivetrains to electric. Maybe these trucking companies are slowing production right now while they are investing in green energy?
Nope, they would re-purpose staff and facilities to pump out the new wave of high tech rigs. This is strictly cost cutting after blowing through the gains of front running tariff-mageddon. Tariffs don’t cost everyday people anything until they cost everyday people everything.
Pulling kinetic braking energy by wire, (instead of brake heat and wear) and maybe pumping up air brake tanks kinda makes sense if it works out cost wise. Maybe even a few storage batteries for the often stopping city driven rigs for other uses. Batts too expensive and low energy density by weight for actual power. Wonder if locomotives can do this somewhat already? Every little bit helps when it’s a big biz.
You did say “drive trains”, and that’s the cheapest place to best do it.
(Makes me think of old “Jake Brakes” on log trucks).
F-1 is having a field day with all this braking recovery stuff, but then cost is no limit there, or system failure.
“… the company declined to disclose if the production cuts involve layoffs …”
Which means layoffs.
9/16/19 Navistar is laying 300 people off. The workers have already “been told.”
Those unfortunate souls will cut back consumption which means the industrial recession will lead to a recession.
Has the US has already worked through the pre-tariff inventory buildup?
lenert,
The answer is, No. That’s a big issue. Building those inventories was an issue in 2018 (bottlenecks in transportation leading to the boom), having those inventories is an issue now. But it looks like they are starting to whittle them down. But it will take a while.