Commercial vehicle outlook: Medium-duty to be the bright spot

Plunging energy prices may have made big vehicles less expensive to operate in 2015, but it made many of them tougher to sell – a trend that manufacturers expect to continue into 2016. Falling oil prices sapped sales of off-highway equipment last year, effectively ending the boom manufacturers had been celebrating from U.S. shale oil production. Mining equipment continued its multi-year decline with cheap natural gas and emerging emissions regulations that eroded the coal industry.

“Energy & transportation’s sales are expected to be down 5% to 10% as a result of continuing weakness in oil and gas coupled with a weaker order backlog than in 2015. Mining is expected to be down again, resulting in a decline in resource industries’ sales of about 10%,” Caterpillar executives say in warning investors to expect declining results in 2016. “The preliminary outlook reflects weak economic growth in the United States and Europe with U.S. construction activity impacted by low infrastructure investment and continued headwinds from oil and gas. It also reflects a slowing China, Brazil in recession, and continuing weakness in commodity prices.”

On the agricultural side of the heavy vehicle industry, things are no better. Strong agriculture equipment sales in 2014 led to declines in 2015, and with crop prices stagnant, farmers are facing thin profit margins this year, lowering the likelihood of equipment purchases. The U.S. Department of Agriculture expects surpluses of oil crops (soybean, cottonseed, Canola, peanuts, etc.) to depress prices in early 2016, and similar trends are taking place with wheat and corn.

Better outlook for shipping

The on-highway world has a more optimistic outlook for 2016. Medium-duty truck sales accelerated through the fourth quarter of 2015 as fleets replaced aging delivery trucks, ambulances, and other Class 5-7 vehicles. Tractor-trailer Class 8 trucks started the year strong, slipped a bit in the third quarter, but finished 2015 with solid sales, says Steve Tam, vice president of the commercial vehicle sector for Columbus, Indiana-based ACT Research.

“Most notable was the U.S. Class 8 sleeper tractor segment, which had its best production and sales year in history,” Tam says. “Carriers anxious to take advantage of more fuel-efficient trucks, spurred by strong freight-rate growth in the first part of the year, get the nod as the drivers behind the story.”

Questions on the strength of the economy have depressed some Class 8 enthusiasm for 2016, Tam says, as some haulers take a wait-and-see approach to equipment purchases. Medium-duty buyers are more enthusiastic with Class 5-7 orders up 4% last year. Tam notes that most of that strength was at the smaller end of the market.

“Class 5 build and sales were the highlights of 2015, setting a record for the best year ever. Classes 6-7, on the other hand, failed to register in the top 10, with 2015 arriving in 13th place,” Tam says. That trend should continue in 2016.

Caterpillar Inc.

www.cat.com

U.S. Department of Agriculture

www.usda.gov

ACT Research

www.actresearch.net