In Rust We Trust: Commercial Vehicle Demand Drivers and Forecast Update Kenny Vieth ACT RESEARCH Co., LLC Federal Reserve Bank of Chicago Automotive Outlook Symposium June 5, 2009
Overview Underlying Economics Population Metrics External Influences Current Market Conditions Forecasts Questions & Answers
The Economy & CVs You buy Class 8 trucks & tractor trailers to haul freight The economy generates the freight that needs to be hauled Medium-duty trucks are purchased for second derivative/service level business activities
8 7 6 5 4 3 2 1 0-1 -2-3 -4-5 -6-7 -8 Percent Change Real Gross Domestic Product Q/Q at SAAR Q1'96 - Q4'10-2.6% +1.7% 123412341234123412341234123412341234123412341234123412341234 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
ACT U.S. Freight Composite 12 10 8 6 4 2 0-2 -4-6 -8-10 -12-14 -16-18 -20 Percent Change Q/Q at SAAR, Y/Y Q1'96 - Q4'10 ANNUAL -9.2% +3.0% 123412341234123412341234123412341234123412341234123412341234 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Class 8 Market Dynamics Economic contraction extends period of overcapacity Y/Y Q4: 6% less freight in 2009 = 6% too many trucks Below replace sales, used truck exports narrow capacity overhang Fleet demographics suggest a strong replacement cycle is a healthy economy away Fleet age to rise to record high in 2010 Synchronized global economic downturn slows used truck exports, but exodus continues NAFTA rule change allows exports to Mexico starting in 09. But
Thousands Q1 Q2 Q3 Q4 TL Carrier Database: Average Miles Per Tractor Q1'95 - Estimated Q1 '09 36.0 34.0 32.0 30.0 28.0 26.0 24.0 1995 1996 1997 19981999 20002001 2002 20032004 2005 20062007 20082009 10 Year Avg Q1 29.1 29.5 30.5 30.3 30.3 30.5 30.8 31.1 30.3 30.3 29.6 29.4 28.2 28.2 26.0 29.9 Q2 30.3 31.3 32.4 31.5 31.8 31.3 31.2 32.1 31.3 31.2 30.3 30.3 29.3 29.8 30.9 Q3 31.5 32.4 32.7 32.0 32.5 30.9 32.0 31.8 31.6 30.9 30.3 29.8 29.0 29.4 30.8 Q4 31.7 32.6 33.1 32.1 32.4 31.0 31.6 31.6 31.4 30.6 30.3 28.6 29.1 26.5 30.3
AVERAGE AGE: U.S. Class 8 Active Population 1979-2014 6.3 6.3 6.3 6.4 6.4 6.3 6.3 6.4 6.3 6.5 6.5 5.9 5.9 6.1 6.1 6.0 6.1 6.0 6.0 6.2 6.1 5.9 5.7 5.7 5.7 5.8 5.6 5.5 5.4 5.4 5.5 5.5 5.5 5.3 5.3 5.3 6.8 6.5 6.2 5.9 5.6 5.3 5.0 Avg. Age in Years 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
U.S. Cl. 8 ACTIVE STOCK SCRAPPAGE 1990-2014 200 Units (000s) 190 180 170 160 150 140 130 120 110 100 90 80 90 92 94 96 98 '00 '02 '04 '06 '08 10 12 Units 14 (000s) 28 CANADA Cl. 8 ACTIVE STOCK SCRAPPAGE 1990-2013 26 24 22 20 18 16 14 12 10 90 92 94 96 98 '00 '02 '04 '06 '08 10 12 14
Used Class 8 Exports 1996 - March 2009, 2009 Estimated 25.0 Units (Thousands) 22.5 20.9 22.1 20.0 17.5 15.0 12.5 10.0 9.7 11.5 7.5 5.8 6.3 5.0 2.5 2.4 2.1 2.3 1.6 1.5 2.8 3.3 4.1 0.0 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09E
Used Class 8 Exports 2008 Geographic Distribution of 22,100 Road Tractor Exports W.Europe 2.2% Africa 37.7% E.Europe 29.9% SE Asia & ME 7.9% N. Am 8.6% S&C Am. 12.6% Carribean 1.3%
Tightening the Supply Chain Higher fuel prices in 2008 make shippers reexamine supply chains and shipping costs Packaging revolution: Square milk, flat balls, wringing out the water The flip side of the Amazon-ization of consumer spending Sourcing closer to home Producing closer to end markets/assembly facilities Willingness to slow system velocity Consider shift to intermodal
Trucking & Intermodal
Driver Pool Will Get Shallower 2600 2400 DRIVER SUPPLY: U.S. MALES Potential Hirees & Impending Retirees Warm Bodies (000s) 21 Year-olds 65 Year-olds 2000-2020 SUPPLY OF INCOMING CDL-AGE U.S. MALES SHRINKS 2200 2000 1800 1600 1400 HARD TO FIND DRIVERS NOT SO HARD TO FIND DRIVERS U.S. MALES AT RETIREMENT AGE RISES SHARPLY 1200 1000 800 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: U.S. Census Bureau, ACT Research Co., LLC: Copyright 2009
Class 8 Market Direction Class 8 Market Indicators Orders: Credit squeeze, freight freeze, choke-off demand» September - December: 10k» Jan. - April: 8k Backlog: Smaller than it looks» BL at 46k in March first increase in 13 months» BL/BU at 4.6 months/97 days Build: Down weeks, not down days» Big holes remain in near-term build plan Retail Sales: Seasonal rise in March, but at low level» In highly spec d market, sales follow where build leads Inventory: Lowest since December 2004» IN/RS ratio remains elevated
Class 8 Order Distribution (Data through April 2009, annualized) Class 8 Orders U.S. (000s) Canada (000s) Mexico (000s) Exports (000s) Total (000s) Past 12 Mo. 103.7 13.3 8.8 10.9 136.7 Past 6 Mo. 89.4 6.2 3.9 3.0 102.6 Past 3 Mo. 77.6 8.1 4.0 3.2 92.9 April 79.2 12.1 2.3 0.3 93.8 April SAAR -- -- -- -- 96.6
40 Units (000s) TOTAL CLASS 8 NA: NET ORDERS (Trailing 12 Months) & BUILD January '02 - April '09 (Not Seasonally Adjusted) 35 30 25 NET ORDERS: Trailing 12-month average BUILD: Actual 20 15 10 5 0 02 03 04 05 06 07 08 09
$70,000 $60,000 $50,000 $40,000 $30,000 $20,000 Fleet Spec Class 8 Truck (4 years old, 500,000 miles, good condition) 1/1/2003 7/1/2003 1/1/2004 7/1/2004 1/1/2005 7/1/2005 1/1/2006 7/1/2006 1/1/2007 7/1/2007 1/1/2008 Average Selling Price 7/1/2008 1/1/2009 ACT Research Co., LLC 2009
TOTAL CLASS 8: N.A. BACKLOG & BL/BU RATIO January '02 - April '09 (Not Seasonally Adjusted) 250 Units (000s) BL/BU Ratio (Months) 24 22 200 20 BACKLOG 18 150 16 14 100 12 10 50 8 0-50 BL/BU RATIO (Right Axis) 02 03 04 05 06 07 08 09 6 4 2 0
TOTAL CLASS 8: N.A. INVENTORY/RETAIL SALES RATIO January '02 - April '09 (Not Seasonally Adjusted) 80 Units (000s) IN/RS Ratio (Months) 10.5 70 9.5 60 50 40 INVENTORY 8.5 7.5 6.5 30 20 10 0-10 -20 RETAIL SALES IN/RS RATIO (Right Axis) 02 03 04 05 06 07 08 09 5.5 4.5 3.5 2.5 1.5 0.5
Medium Duty: Three Major Markets Trucks/Step Vans (70% ) Distribution 70% Construction 18% Refuse Truck 5% Services Truck 5% Fire/Emergency 2% Buses (15% ) Recreational Vehicles (15% )
N.A. Classes 5-7 Order Distribution (Data through April 2009, annualized) Classes 5-7 Orders Truck (000s) Bus (000s) RV (000s) Total (000s) Past 12 Mo. 67.0 29.2 3.0 101.0 Past 6 (AR) 53.7 27.8 0.8 82.9 Past 3 (AR) 52.7 22.9 0.6 77.5 April (AR) 43.8 21.1 2.0 67.2
Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Oct-07 60% 40% 20% 0% -20% -40% -60% Housing Starts vs. Cl 5-7 Truck Sales Y/Y % Change of SAAR Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Source: ACT Research Co., LLC, US DOC Census Bureau HOUST CL 5-7 TRUCK RS Poly. (HOUST) Poly. (CL 5-7 TRUCK RS) Jan-03 Oct-02 Jul-02 Apr-02 Jan-02 Oct-01 Jul-01 Jan-01 Apr-01
30 TOTAL CLASSES 5-7: N.A. NET ORDERS (Trailing 12 mo.) & BUILD (Actual) Units (000s) January '02 - April '09 (Not Seasonally Adjusted) 26 22 18 14 NET ORDERS: 12 Mo. Avg. 10 6 BUILD: Actual 2 02 03 04 05 06 07 08 09
TOTAL CL. 5-7: N.A. BACKLOG & BL/BU RATIO January '02 - April '09 (Not Seasonally Adjusted) 110 Units (000s) BL/BU Ratio (Months) 13 100 12 90 11 80 BACKLOG 10 70 9 60 8 50 7 40 6 30 5 20 4 10 3 0-10 BL/BU RATIO (Right Axis) 02 03 04 05 06 07 08 09 2 1
TOTAL CLASSES 5-7: N.A. INVENTORY/RETAIL SALES RATIO 90 80 70 60 50 40 30 20 10 0-10 -20 Units (000s) January '02 - April '09 (Not Seasonally Adjusted) INVENTORY IN/RS RATIO (Right Axis) RETAIL SALES IN/RS Ratio (Months) 02 03 04 05 06 07 08 09 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1
Class 8 Summary Primary question for CV demand recovery: How long will deleveraging process continue? Economic growth will be constrained through forecast As economy stabilizes and trucker confidence improves, U.S. Class 8 demand should be strong If there is freight to haul, trucks are needed to haul the freight EPA 2010 expected to cause drag through 1H 10 By the end of 2010, fleet age will be at record levels Replacement cycle will drive significant demand Potential remains for modest Class 8 demand pickup ahead of EPA2010 Lack of freight & confidence will keep any up-tick modest
N.A. Class 8 Production 2002-2014 400 Thousands 350 300 250 200 150 100 50 0 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Total C8 267 333 252 146 181 182 269 339 376 212 205 121 182 276 296 318 280 Trucks/Rigids 63 75 80 55 57 52 79 104 123 83 75 37 56 84 90 97 85 Tractors/Artics 204 257 172 91 125 130 190 235 253 130 130 84 126 192 206 221 195
MD Demand Summary Recovery from EPA2007 pre-build M&A potential It s tough out there: Net orders may just be bottoming Build at historically weak levels Housing s collateral damage quashing MD truck demand RV decline tantamount to disappearance Buses slowing, further declines possible Velocity of growth for medium duty market is determined by the pace of economic growth
Total Classes 5-7 N.A. Production 1998-2014 300 Units (Thousands) 279 275 250 200 150 230 231 197 202 197 235 253 206 158 116 142 166 188 202 215 100 50 0 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 RVs 30 35 29 22 40 37 45 32 30 30 11 9 10 11 12 14 15 Buses 29 26 39 42 38 40 37 41 42 37 33 30 31 33 34 36 37 Trucks 171 218 163 133 124 120 153 180 203 140 113 78 100 121 142 152 163
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