2006: Another record year for truck sales or cause for concern?

Class 8 truck sales hit a record 35,984 units in 2005, easily surpassing the previous record of 30,984 set back in 1999. Can 2006 possibly be better? I’ve been asked that question a lot lately. To be honest I’m struggling with the answer.
The January numbers certainly point in that direction with the year off to its fastest start on record. There were 2,441 Class 8 trucks sold in Canada this January, according to records from the Canadian Vehicle Manufacturers Association. In comparison, last year’s record year started with 2,173 trucks sold. And the five-year average for the month is just 1,548.
But is there enough momentum in the economy and the need for new iron among Canadian fleets and owner/operators to last the entire year?

If 2006 does have what it takes to break another sales record, I think the main reason why is that the greatest impact of the pre-buy expected to be used by many fleets to get around the 2007 new engine emissions deadlines will be felt this year.
Our own Transportation Media Research has been polling fleets and owner/operators on this issue steadily since the last engine emissions standard came into effect back in 2002 and caused the initial pre-buy. Every year we’ve found that three quarters of the fleets and owner/operators were comfortable enough with the decision they made in 2002 – to either pre-buy, post pone or carry on with their usual schedule of truck replacements – that they were planning to use the same strategy in 2007.
Our research shows a quarter of fleets will employ a pre-buy strategy for 2007. And that moves up to better than 40% of fleets if we single out large, for-hire fleets.
Demand for truck services also looks good for the year, albeit not quite as good as last year’s. Another of our research projects, our recently completed annual Transportation Buying Trends Survey, found that 60% of shippers expected to increase their shipment volumes in 2006 and two thirds of those expected double-digit increases. The survey is conducted by our Transportation Media Research in partnership with the Canadian Industrial Transportation Association (CITA) and the Canadian Institute of Traffic and Transportation (CITT). It includes the responses of more than 700 shippers across Canada, representing a broad spectrum of industries.
Trucking is the mode that stood to benefit the most from continued strong demand for transportation services – 47% of shippers expected to increase their use of truck transport in 2006.
But there are concerns. I’m just not sure about their timing – whether it will be the latter part of the year that they will hit or early 2007.
At the same time that the pre-buy is going on, the North American economy is expected to slow, particularly if the predicted pullback in consumer spending occurs and new housing starts fall off in the US. It seems that housing prices in key US markets are reaching levels that may finally start to scare away new buyers. And if the housing bubble bursts as a result that could definitely have an impact on US home owners who have been basically using their increasingly higher-valued homes as ATM machines, amassing significant debt levels to satisfy their spending.
Of course, no one can predict exactly when the housing bubble will burst. But if it bursts at the tail-end of the fourth quarter and sends the US economy into a spiral (and our economy along with it) that will coincide with the pre-buy in trucking drawing to a close. Class 8 sales in the final quarter will likely drop as motor carriers become pessimistic about the demand for their services in the coming year. Of greater concern is that the drop in truck sales in the first half of 2007 could go for even more of a dive in early 2007 than currently expected.
Looking at things on a more global basis, China’s GDP growth is expected to hold steady at above 9%, thanks in large part to strong production. But the US accounts for up to 40% of Chinese exports. And therein lies the risk. If US demand sputters in the second half because of a slowdown in consumer purchases, it will certainly have an impact on China, which has served as the global economy’s engine of growth. That too will hurt Canada’s economy.
Looking specifically at our internal economic factors, there’s no doubt there are some definite soft spots. Industries where there was a combination of a strong Canadian dollar and soft international pricing went through troubling times in 2005 and there will continue to be pain in 2006. The Canadian automotive industry is also feeling the crunch. Manufacturing in general is feeling less optimistic than the rest of economy, particularly in the Canadian heartland, our research shows.
So those are the reasons I’m of two minds on the prospects for 2006.
Over the longer term, I see believe there’s a more basic reason that will keep Class 8 truck sales from hitting higher peaks. The Canadian truck market hit an ominous mark in 2004, according to a study by Statistics Canada. For the first time, truckers aged 55 and over outnumbered those under 30, indicating that the occupation may be hit by a large number of retirements in the coming years. Drivers 55 or older also make up 18 per cent of the 271,000 people who worked as truckers in 2004, compared with 13 per cent for workers in general.
The average age for a truck driver is 42, and for their self-employed counterparts (O/Os), 45. Just as worrisome is the lack of young truck drivers. Only 5% were under 25 in 2004, compared with 15 per cent in the labour force as a whole. Similarly, just over one-quarter of truckers were between 15 and 34, as opposed to 37% in the labour force as a whole.
From the standpoint of supply, this indicates that today’s young workers are less inclined than the previous generation to enter the occupation, according to the study.
Future truck sales may be challenged by something as simple as the fact that there’s no use investing in new rigs if there’s desperately few people to drive them.