TORONTO,
Ont. – It won’t be business as usual as vehicle manufacturers ramp up
production following the economic lockdowns connected to Covid-19.
Emerging demands
will range from new hygiene procedures in the workplace, to the contact tracing
needed to identify anyone who employees interacted with if someone is exposed
to the virus.
“Folks are
spending an incredible amount on cleaning and sanitizing right now,” ACT
Research vice-president Steve Tam said on Wednesday, during a webinar hosted by
the Heavy Duty Manufacturers Association (HDMA).
The
challenges won’t end there.
“How do you
handle shift times?” Tam said as an example, referring to options such as
staggering shifts or bringing employees back in waves. Sales, distribution and
service activities are expected to become increasingly virtual as well, both because
of public health activities and budget restrictions.
While
industry manufacturers appear ready to restart their activities, surveyed HDMA
members continue to believe there’s a significant risk for a second wave of
Covid-19, said Richard Anderson, director – market research and analysis at
HDMA.
For now,
the vast majority have completed key steps for restarting, including social
distancing at facility entrances; social distancing for meetings; the acquisition,
storage and distribution of PPE; and staffing under maximum-occupancy constraints.
Almost half
of surveyed members believe Covid-19 will lead to “moderate” long-term structural
changes in the workplace, too. Another 28% expect a larger structural impact
than that.
While the
related supply chain is currently “pretty under-stressed”, with limited delays
associated with inbound and outbound shipments, the flow of goods could shift
depending on how the economy reopens, he added. A sudden opening could lead to
“big blockages” that would need to be overcome.
Manufacturing
the equipment is only part of the equation, of course. Buying habits will be
influenced by any number of factors. Tax breaks, interest deductibles, and cash-for-clunker
programs will all play a role in customer “means and motivation”, Tam said.
As the economy
begins to restart, after being essentially shut down in April, there is still
plenty of uncertainty around the speed of the recovery. Unknowns here range
from the timing of a vaccine to a reheating trade war with China, Tam said.
Lower truck production
Truck
manufacturing activity was already declining earlier this year, before the
world closed its doors.
Where
345,000 Class 8 trucks were built for North America in 2019, ACT Research
predicts the total will plunge to 117,000 units this year, rising to 189,000 in
2021 and 286,000 units in 2022. Drops have been seen in the Class 5-7 build,
too. The 281,000 trucks built in these classes in 2019 is expected to drop to
125,000 in 2020, rising to 205,000 in 2021 and 269,000 in 2022.
Things don’t
seem much better when it comes to trailers. Compared to the 333,000 manufactured
in the U.S. in 2019, ACT Research predicts 149,000 in 2020, 199,000 in 2021,
and 253,000 in 2022.
Recently
surveyed HDMA members in the U.S. and Canada say their commercial vehicle
business plans will likely be down 50% in the second quarter, and 40% in the
third quarter of this year. Compared to the same periods in 2019, those plans
are down a respective 38% and 34%. They don’t expect sales to hit positive
territory until the fourth quarter of the year.
Fleets face
challenges of their own, such as the increasing struggles to find backhauls.
And that will play a role in the hunger for equipment.
“Customers
are not clamoring for equipment right now,” Tam said. “We have too many trucks
and there’s just not enough freight.” Capacity isn’t expect to level off until
the latter half of 2020.
Economic bright spots
There are a
few bright spots, though. Final-mile activities are strong as consumers shift
more of their spending to e-commerce. Landscapers also represent unseasonably
good growth. “There are bright spots throughout every industry,” he said. “You
have to find the conditions to find the market that’s doing well.”
One of the
things that worries him is that manufacturers might ramp up production before
the orders are secured, adding to the inventory already available on dealer
lots. Order intakes haven’t been this low since September 1995, when the
industry recorded negative net orders for a couple of months.
As for the
orders that have been placed, OEMs appear to be flexible when it comes to
cancelation policies, Tam said. (“When carriers experience tough economic times
… the last thing you want to do is kick them when they’re down.”) Buyers also
tend to renegotiate deliveries rather than canceling them outright in the name
of locking in pricing. For now, OEMs are honoring those commitments, although
the deals might be rewritten if things are pushed beyond the current model
year, he said.
Used truck
sales have held relatively steady, boosted in part by small operators who
looked to tap into the temporary surge in freight activity this March, although
the value of the equipment has been dropping, Tam said. It’s a buyer’s market,
with a lot of high-quality and gently used equipment available if it’s needed.
As for the
business trucking operations conduct, plunging spot rates are expected to
increase the downward pressure on contract rates, he said.
In the
meantime, one of the greatest challenges to restarting manufacturing activities
will involve the accuracy of production and demand forecasts, and business cash
flows. There were concerns about the liquidity of smaller customers before the
pandemic, Anderson said. Now the worry is almost universal.
“We can only do what we know to do,” he said,
referring to the forecasts. “If we don’t have a target to hit, we can’t hit
it.”
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