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Bull Run in Truck Manufacturing Heading Toward Bearish Production

While the 1997-1999 increase in truck manufacturing may have been a "bull run," today's production is waning, said Marc Gustafson, Volvo Trucks North America president and chief executive officer.

"Truck demand is slowing as the general economy continues to race on," he said. "Clearly, we are in a correction phase."

Gustafson made the remarks May 16 at the National Tank Truck Carriers (NTTC) 52nd annual conference in Chicago, Illinois.

Despite softening production, truck manufacturers remain healthy, partly as a result of acquisitions and consolidations. He predicted that 238,000 Class 8 trucks will be sold in 2000, compared to 309,000 in 1999. At the same time, Volvo's recent alliance with Mitsubishi and a pending acquisition of Renault and Mack would make Volvo the world's second largest manufacturer of trucks and the third largest of engines.

"There are a few speed bumps in the industry, but we are optimistic for the long term," he said.

On the long-term side are today's strong chemical, food, and petroleum industries. Productivity is increasing, causing carriers to upgrade equipment to meet the demand.

For the short term, concerns include rising interest rates that impact truck sales. Truck sales typically fall about 12-15 months after an interest rate increase, he said.

Other economic factors causing concerns are current dealer inventories, estimated at a high of 150,000 new trucks. An additional 50,000 used trucks are in the marketplace.

Also making the speed bump a little harder to navigate is the price of diesel and its control by the Organization of Petroleum Exporting Countries (OPEC). OPEC decisions to increase or reduce crude oil production not only raise or lower diesel prices, but the cartel's erratic resolve impedes accurate budget projections. Many carriers caught in the cartel's web this year won little sympathy from shippers for rate hikes.

"Trucks and drivers stayed home when shippers would not grant a surcharge," Gustafson said. He quoted an NTTC estimate that 1,000 tank trailers were idle at the height of the diesel crisis.

The high cost of diesel is not the only factor causing carriers to reconsider new truck purchases. Budgets are being hit hard as a result of a shallow driver pool that is forcing increased capital outlays for recruitment and retention. As in the diesel situation, many carriers find that driver-related surcharge requests fall on deaf ears.

Although positive carrier/shipper interaction is occurring, the relationship must be improved for the two industries to flourish, Gustafson said.

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