July 12, 2010 6:30 AM, EDT

Parts Makers Optimistic on Economic Recovery

Sales Rise in Second Quarter, HDMA Survey Finds
By Frederick Kiel, Staff Reporter

This story appears in the July 12 print edition of Transport Topics.

The Heavy Duty Manufacturers Association said 84% of its members experienced sales growth during the second quarter, with 28% reporting “substantial growth.”

HDMA’s survey of parts makers for heavy-duty tractors and trailers also found that 82% of respondents are optimistic about the economic recovery moving forward.

“Our quarterly barometer turned solidly optimistic in the second quarter . . . with not a single company reporting a decline in sales compared to the first quarter,” Timothy Kraus, HDMA president, told Transport Topics.

He said 50 executives responded to the latest survey, released in the last week of June.

The survey found that 78% of companies are hiring, up from 72% in the first quarter, with 76% saying they are adding production capacity.

In addition, 60% said they have not changed prices from the first quarter, though 26% imposed “modest” increases and 4% raised prices substantially.

“In any truck-related segments, business is absolutely booming, but that is a relative term,” said Joe McAleese, CEO of Bendix Commercial Vehicle Systems. “Compared to 2006, the market is extraordinarily depressed, but compared to my expectations for this quarter, business is very strong, both from the [original equipment] standpoint, and the aftermarket.”

Charles “Chip” McClure Jr,, chairman and CEO of ArvinMeritor Inc., also expressed optimism.

“Given the reported increase in Class 8 orders last month in North America and the continued strength in the trucking industry in Brazil, India and China, we are cautiously optimistic that Class 8 markets, particularly in North America, will continue to rally,” McClure told TT.

HDMA’s report said weak sales had been the greatest concern for its members for the past six quarters, but that subject now ranks last in their worries.

Instead, the top concern now was their ability to meet demand, followed by the availability and cost of raw materials.

Bendix’s McAleese said the supply chain, which had downsized during the recession, is now “struggling to keep up with demand.”

McAleese said the recent string of bad economic news hasn’t shaken his long-term optimism.

“No, the bad economic news of the past few weeks doesn’t bother me, especially because the underlying fundamentals for trucking and transport continue to look good,” he said. “If I have a concern, it is with the overall supply chain.”

Jay Longbottom, executive vice president of Haldex Commercial Vehicle Systems, Kansas City, Mo., said he was pleasantly surprised by second-quarter results.

“The forecast had been that the second quarter would be down compared to first quarter, and that is why

I am optimistic, and all others are optimistic, because the reverse happened,” Longbottom told TT.

“At Haldex, we’re definitely up in the second quarter in North America, better on the OE side in both the truck and trailer markets,” Longbottom added. “We had a good first quarter in aftermarkets, which turned earlier.”

Longbottom said that Haldex has begun only very limited hiring, but expects to increase it as more original equipment orders come in, as is expected later in the year.

Dennis Weaver, chief executive officer of Defiance Metal Products, Defiance, Ohio, said that increased trucking activity has improved his confidence.

“I do have optimism that I didn’t have earlier in the year, and that optimism is being driven by some of the improving metrics and the recent announcements by truck manufacturers that they are seeing improvement in order boards and are projecting improved business in the fourth quarter,” Weaver said.

Defiance Metal manufactures stamped metal objects that go into components of new trucks.

“We’re only seeing very moderate growth ourselves and our optimism is a cautious optimism,” Weaver added.

Jack Gisinger, president of Powered Vehicle Systems, SAF Holland, said that his division started showing improvement in its aftermarket sales in the fourth quarter of 2009, with original equipment sales picking up in the second quarter.

“We’re all aware that both the tractor and trailer sides of the truck industry are showing a definite improvement,” Gisinger said.

“We basically have brought back all the people we laid off during the recession,” he said.

“We’re working a lot of overtime and bringing in temporary workers as well as full-time salaried people in sales and engineering,” Gisinger added. “If things continue to improve, we’ll add shifts and permanent workers to factories — but not right now.”

Gisinger said that the string of bleak news for the economy as a whole in recent weeks did not change his optimism.

He told TT that “everyone is focused a little bit on a slowdown in the economy . . . but we always seem to outperform what the economists say we’ll do, and that’s what will happen again.”