ACT Research: Q4’22 Commercial Vehicle Market Overview

ACT Research is recognized as the leading publisher of commercial vehicle (CV) truck, trailer, and bus industry data, market analysis, and forecasts for the North America (NA) and China markets.

See what ACT's experts had to say this month:

1. Economic Essentials You Need to Know at End-of-Year 2022

2. Freight Recession Commencing

3. Drama in Used Truck Market

4. Medium-Duty Market a Mixed Bag

5. Tenacious Trailer Demand Persists

6. Best Recession Ever for Heavy-Duty Market?


Economic Essentials You Need to Know at End-of-Year 2022

As a business in the CV industry, you understand how critical it is to consider macroeconomics when planning for the future. ACT’s view is that a mild recession, starting in 2023 (if it’s not already in place now), is the most likely near-term planning scenario. 

Every recession episode is different, and in this one the impact on CVs may be fairly mild, thanks to pent-up demand. While the view of a mild recession with a light touch on trucking is fairly hopeful, we can’t ignore:

  • Both US and global economies continue to face inflation challenges.
  • The aggressive tightening response of central bankers around the world is raising the probability of recession.
  • Energy prices are high, which is often associated with severe recessions.
  • Other rate-sensitive, freight-generating sectors—such as capital goods, consumer durables, and others—may decline.

Jim Meil, Principal, Industry AnalysisAll are factors that could contribute to a more severe outcome; however, there is still selective economic strength, most notably in motor vehicles and labor markets. “That’s why we say this is going to be a mild recession ahead, perhaps lasting two or three quarters,” shares Jim Meil, Principal, Industry Analysis at ACT. “But we’re betting on a mild recession.”

While we can’t ignore the downbeat economic conditions at present and yet to come, we also can’t ignore factors mitigating a sharper CV market downturn:

  • Carriers are flush with cash. 
  • There is still pent-up demand, even if less so than before.
  • There will be some prebuying.

Freight Recession Commencing

US vehicle manufacturing is finally picking up, as semiconductors and other parts availability improves, helping satisfy pent-up demand and add truckload capacity. As is typically the case in late stages of freight cycles, the clear signal from spot rates should be telling the industry to be more disciplined with capital, but there are still truckloads of pent-up demand. For now, Class 8 equipment demand remains red hot, adding to supply challenges.

ACT For-Hire Trucking Index: Freight Rates
 

In looking at our modest recession we have forecast for 2023, Kenny Vieth, President & Senior Analyst at ACT Research, cautions, “we see ACT’s Freight Composite—a freight-weighted, GDP-based metric that recognizes different economic segments create freight at different rates—contracting next year.”

 

 


Drama in Used Truck Market

Interestingly, according to preliminary data in October, the used truck market average retail sales price moved counter to expectations, ticking up a scant 1% m/m. While a welcome change from the monotonous drumbeat of persistent decline, nothing fundamental that would recalibrate expectations has changed.

Other Key Insights To Be Aware Of

Class 8: U.S. Used Truck Average Age
  • Demand is lagging, mainly due to slower freight markets.
  • A lack of inventory is challenging volumes, minimally supporting prices.
  • Miles and age continue trending up, subtly.

According to Steve Tam, Vice President at ACT Research, “The declines we’re seeing are a result of the slowing economic and freight metrics. Those are exacerbated, of course, by the lack of inventory because we’re not able to produce new trucks, thanks to the supply-chain constraints.”


Medium-Duty Market a Mixed Bag

Though the economy is slowing and will do so in 2023 as well, saturation of pent-up demand bodes well for the MD market through 2022 and all of 2023. 

There are a lot of large, sophisticated customers that have very definitive trade cycles, and they’ve been forced, in this situation, to age their fleets. That’s not a permanent solution. It’s a transitory solution, at best. -Steve Tam, Vice President
  • MD customers seeing moderate improvement.
  • IN/RS ration going the wrong direction.
  • Service-centric economic growth subsidizing MD truck demand

Regarding the outlook for the MD market, Tam shared, “A little bit less pessimistic on the medium-duty side, we’ve really been challenged in the medium-duty market. We’ve taken a backseat to higher-margin vehicles. It’s logical from a business perspective, but unfortunately, it’s no less frustrating for those medium-duty customers.” 

In response to MD pent-up demand, he added, “We’re running about three times our normal average backlog.”

Connecting back to the concept of aging the fleet as we previously discussed for the used truck market, Tam said it also applies to the medium-duty space: “There are a lot of large, sophisticated customers that have very definitive trade cycles, and they’ve been forced, in this situation, to age their fleets. That’s not a permanent solution. It’s a transitory solution, at best.”


Tenacious Trailer Demand Persists

From a current market standpoint, strong demand continues for CV trailers. And, according to Jennifer McNealy, Director, CV Market Research & Publications at ACT Research, “From the supply-chain standpoint, we have OEMS being very nimble, trying to mitigate those constraints as best they can.”

Here are rapid-fire trailer market highlights

October 2022 Preliminary Net Trailer Orders
  • 2023 orderboards open? Yes, but it also depends on which OEM you ask. Some are open for the first quarter of 2023, some open for the first half, and others open for the full year. What remains the same for all OEMs, though? As soon as slots are opened, they are immediately filled.
  • There is a bit of a dance occurring between cancellations and rebooks right now. McNealy added, “Most of the cancellations are cancel and rebook.”
  • Supply constraints are easing.

Best Recession Ever for Heavy-Duty Market?

  • Demand remains quite healthy, but the caveat here is we’re getting very late into the cycle, and we do expect an inflection in 2023.
  • Class 8 orders set a record in September and were followed by robust orders in October.
  • Cancellations are virtually nonexistent.
  • Like other market sectors, supply-chain constraints are easing.

Total Class 8 N.A.: Net Orders 12 Mo. Avg. & Build

Regarding orders, Eric Crawford, Vice President & Senior Analyst at ACT Research, indicated, “We’re past the peak in orders, but 2023 will be about OEMs playing catch up, working down those backlogs.” 

Surprisingly, when you assemble the puzzle pieces, our reading is that the prospective recession in 2023 could be the best recession ever for the heavy-duty truck market. 

 

Despite all the headwinds in the economy, we see:

  • Pent-up Class 8 demand, supplemented by
  • A pull forward from 2024 California Air Resources Board (CARB) emissions regulations.

Both factors will drive the industry to solid 2023 sales and build volumes.


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