North America - The Rollercoaster Ride Continues. Kenneth Kremar Principal, Industry Practice

Transcription

1 North America - The Rollercoaster Ride Continues Kenneth Kremar Principal, Industry Practice

2 Economic Conditions and EPA Regulations Ensure Continued NAFTA Market Volatility 700 (NAFTA Class 4-8 Retail Sales 000 Units)

3 The United States Still Dominates the Class 4 8 Retail Sales Landscape (NAFTA Class 4-8 Truck Retail Sales - % Distribution) U.S. (L) Canada (R) Mexico (R) 3

4 2007: A Rough Year for Medium and Heavy Trucks in the United States 2007 is shaping up as a major down year for trucks With three strong sales years behind us, , the commercial fleet is young and pent-up demand is no longer a factor in the 2007 outlook Adding insult to injury, 2007 is proving to be a lacklustre year for motor carrier traffic and most major truck-buying markets With too many trucks chasing too little traffic and vocational markets limping along, equipment utilization is at its lowest level in years The demand for new equipment is also being dampened by the payback for last year s pre-buy to beat 2007 EPA diesel engine emissions regulations 40,000 50,000 class 8s 15,000 20,000 class 4-7 4

5 The U.S. Fleet Has Been Aggressively Upgraded in Recent Years 55 (Ratio of retail sales last 3 years/last 7 years) Class 8 Class 4-7 5

6 Manufacturing, Retailing, and Wholesale Trade Have Lost Their Forward Momentum 12 (Percent change versus a year ago) Manufacturing Retailing Wholesale

7 The Construction Boom Is Over Construction Spending (Billions of dollars)

8 New Home Construction Has Gone From White Hot to Ice Cold 30 (Percent change in spending from a year ago) Private Residential Public Nonresidential

9 Major Trucking Companies Reported a Decline in Traffic of 2.2% Through August ATA Truck Tonnage Index (Percent change from a year ago)

10 Small Businesses Have Their Doubts Index of Small Business Optimism (1987 = 100) Monthly 3-Month Moving Average 10

11 Small Business CAPEX Plans Have Been Scaled Back Percent of Small Businesses Planning to Increase Capital Spending in Next Six Months (Three-m onth m oving average)

12 Sky-High Fuel Prices Squeeze Motor Carrier Profit Margins Retail On-Highway Diesel Prices (Cents per gallon)

13 Class 8 Heavy Truck Sales Have Fallen 43% Year-to-Date (U.S. Retail Sales Units)

14 Heavy Truck Orders Have Tumbled 57% Year-to-Date Class 8 Truck Net New Orders (Units) Source: J-C Communications 14

15 Class 4 7 Medium-Duty Truck Sales Have Declined 12% Year-to-Date (U.S. Retail Sales Units)

16 New Orders for Medium-Duty Trucks Have Tumbled 44% Year-to-Date Medium-Duty Truck Net New Orders (Units) 27,000 24,000 21,000 18,000 15,000 12,000 9,000 6, Source: J-C Communications 16

17 : The Rollercoaster Ride Continues 2008: Not enough strength in the economy to trigger any meaningful improvement in truck sales : Economic and end-market conditions point to a favourable climate for equipment acquisition We are not anticipating a four-year honeymoon for class 4 8 trucks The third leg of EPA diesel engine emissions regulations are set to hit the market in emissions standards are tougher than 2002 and 2007 requiring major redesign of both engines and trucks Another pre-buy/payback event looms Truck sales go from boom in 2009 to bust in

18 The U.S. Economy and Class 4 8 Truck Sales (GDP Growth = +2.0% = +2.8%) GDP Growth Class 4-8 Truck Sales 18

19 The Crude Oil Supply/Demand Equation Suggests Little Help on the Diesel Fuel Front West Texas Intermediate ($ per barrel)

20 For-Hire and Private Fleet Activity Will Improve Slowly Motor Carrier Tonnage (Percent change from a year ago)

21 Medium and Heavy Trucks Will Remain Under Utilized Until 2009 Truck Vehicle Miles Travelled (Percent change from a year ago)

22 Activity in Key U.S. Truck-Buying Markets (% Change in Real Growth Unless Otherwise Indicated) For-Hire Carriers Low-Tech Manufacturing Retail & Food Service Wholesale/Distribution Construction Mining X Oil Logging WTI $/bbl Net Farm Income - $ Bil Service Industries S & L Gov. Equip. Spend Trades & Other Employ

23 A Wild Ride Ahead for Heavy Trucks U.S. Retail Sales of Class 8 Heavy Trucks (Thousands of units)

24 The Medium-Duty Market: Not as Volatile as the Heavy-Truck Segment U.S. Retail Sales of Class 4 7 Trucks (Thousands of units)

25 The Canadian Market The Canadian economy is outperforming the U.S. While most truck-buying end-markets are posting slower growth rates in 2007 than in 2008 growth remains solid Fleets heavily involved in cross border traffic with the United States are experiencing more difficulty than those that are more domestically oriented Payback for 2006 pre-buying to beat U.S. EPA diesel engine emission regulations is taking an added toll at the upper end of the market Beyond this year, the Canadian economy will again outperform the U.S. economy in 2008 as will most truck-buying markets Looking further out, economic and end-market conditions in Canada will continue to perform at a level that supports healthy truck sales Expect pre-buy/payback event in

26 Lacklustre Cross Border Traffic and Payback for 2007 Pre-buying Have Taken a Toll on Heavy Truck Sales Canadian Class 8 Heavy Truck Retail Sales (Units)

27 A Solid Domestic Economy Has Helped the Medium-Duty Market Canadian Class 4 7 Truck Retail Sales (Units)

28 Canadian Retail Sales of Class 4 8 Trucks (Thousands of Units) Class 8 (L) Class 4-7 (R)

29 The Mexican Truck Market The Mexican economy grew by 4.8% in 2006 and activity in key truck-buying markets expanded by 4.5%, bolstering truck sales in 2007 Mexican cargo carriers have spent $2.2 billion in the past year GDP growth is set to slow to 3.0% in both 2007 and 2008, which will be reflected in the performance of key truckbuying markets, and suggests some near-term softness in truck sales Looking further out, the Mexican economy expands % from With this as a backdrop, truck sales in Mexico should gain considerable ground over the year through

30 The Prospects for the Mexican Truck Market Remain Bright Mexican Retail Sales of Class 4 8 Trucks (Thousands of Units) Class 8 (L) Class 4-7 (R) 30

31 NAFTA Heavy Truck Sales by Manufacturer (Market Shares - %) DaimlerChrysler International Paccar Volvo Mack

32 NAFTA Class 4 7 Sales by Manufacturer (Market Shares - %) DaimlerChrysler International Ford General Motors Other

33 The U.S. Still Dominates NAFTA GVW 4 8 Truck Production (NAFTA Class 4 8 Truck Production - % Distribution) U.S. (L) Canada (R) Mexico (R) 0 33

34 NAFTA Class 4 8 Truck Production 400 (Thousands of Units) Class 8 Class

35 NAFTA Heavy Truck Production by Manufacturer (Market Shares - %) DaimlerChrysler International Paccar Volvo Mack Other 35

36 NAFTA Medium-Duty Truck Production by Manufacturer (Market Shares - %) DaimlerChrysler International Ford General Motors Other

37 Diesel Engines Used in Class 7 and 8 Trucks 2005 Market Share Caterpillar 29.5% Cummins 22.6% Detroit Diesel 15.4% Hino 0.2% Mack 9.2% Mercedes Benz 9.6% Navistar 8.7% Volvo 4.9% 2006 Market Share Caterpillar 29.5% Cummins 23.5% Detroit Diesel 14.3% Hino 0.3% Mack 8.2% Mercedes Benz 8.9% Navistar 10.0% Volvo 5.2% 37

38 Conclusions U.S. sales of class 4 8 trucks will remain anaemic until well into 2008 The Canadian truck market will mirror the performance of the U.S. market but will perform a bit better The surge in Mexican class 8 sales this year is not sustainable Healthy economic and end-market conditions point to strong NAFTA truck sales from However, pre-buying to beat 2010 U.S. EPA diesel engine emissions regulations will roil the market in The oil supply/demand equation suggests that diesel fuel prices will remain at lofty levels throughout the forecast period 38

39 Thank You Kenneth Kremar Principal, Industry Practice