ACT Research: Analysts Forecast Strong Class 8 Production and Sales to Exhaust Pent-up Demand in 2023
Class 8 demand to this point has remained relatively resilient, but ACT Research sees clear softening in big fleet profitability and other ancillary metrics. Expectations, as published in the latest release of the North American Commercial Vehicle OUTLOOK, are that current strong production and sales in the face of weak freight creation will exhaust pent-up demand in 2023, as lower freight rates, higher equipment and borrowing costs, improved equipment availability, and shrinking profits put downward pressure on demand overall.
“Even as the Class 8 market comes under increasing pressure, van trailer demand continues to enjoy secular support from the move to ‘power-only brokerage,’ which has big fleets and logistics companies looking to boost trailer to tractor ratios to bolster spot market productivity,” according to Kenny Vieth, ACT’s President and Senior Analyst.
Vieth added, “We’ve spent most of the past year warning about a potential recession. Admittedly, the economy has proven more resilient than initially envisioned. That said, we think broader economic conditions are softening, and we reiterate our cautious view, including our forecasts for slowing 2H’23 production rates. We continue to expect a shallow recession to materialize, centered on mid-year.”
The critical factor in forecasting, especially as we look to 2024, is when do those demand headwinds, lower freight volumes and rates, plus higher borrowing costs, compress carrier profits sufficiently to kill the peak-cycle activity? One of the critical heavy vehicle demand components, carrier profitability, is increasingly under pressure. In Q1, the public carriers’ profits took a hit, falling to levels last seen in early 2020. While some of the decline was seasonal, core carrier margins were down 250bps y/y, and 300bps below the cycle’s Q4’21 peak. With contract rates expected to deteriorate through 2023, profit margins should continue to narrow.
Vieth concluded, “Aside from near-term Class 8 demand timing, the immediate wildcard in our forecast remains the debt ceiling. While the Fed plays a major role in determining the interest rates businesses and individuals pay to borrow money, the coming debt ceiling battle may serve to pause business investment, unnerve investors, and push interest rates even higher, which could induce a deeper recession sooner.”
The N.A. CV OUTLOOK reports on the trucking industry forecast, providing a status of commercial vehicle demand, tactical and strategic market analysis and forecasts ranging out five years. The report’s objective is to give OEMs, suppliers, investors, and other interested market participants the information they need to make informed decisions in what is traditionally a deeply cyclical market. The report provides a complete overview of the North American markets, touching on relevant demand drivers starting with forward-looking activity metrics, orders and backlogs. Information included in this report covers build and retail sales forecasts and current market conditions for medium- and heavy-duty trucks/tractors, and trailers, North American macroeconomics by country, freight and carrier market performance, used equipment valuation trends, and regulatory environment analysis and impacts.
ACT Research is recognized as the leading publisher of commercial vehicle truck, trailer, and bus industry data, market analysis and forecasts for the North America and China markets. ACT’s analytical services are used by all major North American truck and trailer manufacturers and their suppliers, as well as banking and investment companies. ACT Research is a contributor to the Blue Chip Economic Indicators and a member of the Wall Street Journal Economic Forecast Panel. ACT Research executives have received peer recognition, including election to the Board of Directors of the National Association for Business Economics, appointment as Consulting Economist to the National Private Truck Council, and the Lawrence R. Klein Award for Blue Chip Economic Indicators’ Most Accurate Economic Forecast over a four-year period. ACT Research senior staff members have earned accolades including Chicago Federal Reserve Automotive Outlook Symposium Best Overall Forecast, Wall Street Journal Top Economic Outlook, and USA Today Top 10 Economic Forecasters. More information can be found at www.actresearch.net.
