http://www.Gabelli.com
Invest with Us 1-800-GABELLI (800-422-3554)
Hi, My name is Shawn Kim and I’m a Research Analyst at Gabelli Funds covering the automotive and trucking industries.
Following a historic year of heavy duty truck orders in 2018, 2019 represented the peak of the current class 8 cycle with North American class 8 production finishing the year at roughly 342,000 units, up 6% vs 2018. Class 8 orders were down 63% in 2019 to roughly 180,000 orders and we expect this decline to be reflected in this year’s production numbers, which we expect to total roughly 240,000 units or down 30% vs 2019.
Despite relatively stable end markets and continued broad based economic strength, class 8 leading indicators continue to show weakness. The ISM New Orders index decreased again in December to 46.8 from 47.2 in November and remains in sub-50 contraction territory for the fifth consecutive month. The Cass Freight Index was also down nearly 8% in December, marking the 13th consecutive month of YoY declines.
With that said, we believe 2020 represents a necessary “cleansing period” for the industry following unsustainable levels of production that created various supply chain constraints, pushing the industry to beyond maximum capacity. Even with a 30% decline in production, we expect the North American Class 8 market to represent a healthy replacement demand level environment. There are already early signs of a potential rebound including improving cancellation rates and constructive commentary from OEMs around dealer optimism. We also suspect a fair amount of dealers & fleets have delayed their orders instead of outright cancelling them given the 6 month+ lead times that most of the industry was facing heading in to 2019. Based on our discussions with companies, Class 8 orders could normalize by mid-year.
We continue to view the commercial vehicle industry as a key barometer of the US economy. As consumers and businesses purchase more goods, the majority of those goods have to be transported by commercial vehicles which are responsible for moving 70% of the nation’s freight or around 10.8 billion tons of freight annually.
