Slumping Sales Lead to Lower Earnings For Truck Makers in North America

This story appears in the May 4 print edition of Transport Topics.

Weak Class 8 truck sales around the world led to plunging revenue and either losses or vastly diminished first-quarter profits for three of the four major heavy-duty truck manufacturers and both independent engine makers operating in North America.

The companies also lowered their forecasts for industrywide truck production this year and said there were no signs to suggest that a recovery in trucking is imminent.

Daimler AG and Volvo AB, the world’s two largest heavy-truck makers, each reported declining revenue and losses, at both the corporate level and within their truck divisions. Paccar Inc. made money during the first quarter, but its profits plunged 91% from a year ago, as its revenue dropped by 49.6%. Navistar International Corp. has not yet reported results for its February-to-April quarter.

Profits at engine manufacturer Cummins Inc. fell 92% and Caterpillar Inc. said its North American truck engine business fell 46%.

“Markets for commercial vehicles in Western Europe, the United States and Japan declined in all segments during the first quarter . . . Sales of commercial vehicles dropped in most of the larger emerging markets as well, the sharpest fall being for heavy-duty trucks,” Daimler told its investors April 28.

Speaking to stock analysts, Mark Piggott, Paccar’s chairman and chief executive officer, said April 28, “We’re certainly in a buyer’s market, and the good thing is, we’ve got very smart, motivated customers . . . and they’re taking advantage of the economic cycle we’re in right now, so pricing has probably come down, reflecting very few orders in a tough environmental and economic cycle.”

Pigott said Paccar, Bellevue, Wash., which makes Kenworth and Peterbilt trucks, is financially strong and has good prospects once the economy turns around. However, he declined to specify when that turn will happen.

Volvo AB, which owns Mack Trucks and Volvo Trucks North America, said April 24 there was “continued weak global demand” for trucks.

Volvo said it has lowered its industrywide forecast for North American heavy truck production this year to a range of 111,000 to 129,500 units from a range of 165,000 to 185,000 predicted three months ago. Production in 2008 was 185,000 Class 8 vehicles, the company said.

Paccar estimated industrywide North American Class 8 production of 100,000 to 130,000 units. Daimler did not offer a specific number, but said, “As a result of the global economic crisis, the Daimler Trucks division assumes that unit sales will fall significantly in all its major markets in full-year 2009. We expect to maintain our shares of core markets, however.”

Daimler’s North American brands are Freightliner and Western Star Trucks. In March the company closed its Sterling unit, incurring a first-quarter charge of $58.8 million (4-13, p. 3).

Navistar, manufacturer of International trucks, reported earnings of $234 million on revenue of $2.97 billion for the three months ended Jan. 31 (3-16, p. 5), but has not yet announced a reporting date for its second fiscal quarter, which ended April 30.

Independent engine maker Cummins said April 30 it earned just $7 million, or 4 cents a share, on worldwide revenue of $2.44 billion; with an operating loss of $16 billion in the engine division on sales of $1.2 billion. In the 2008 first quarter Cummins made $190 million, or 97 cents a share, on revenue of $3.47 billion; and its engine business made $194 million on sales of $1.88 billion.

“Nearly every market experienced declines compared to the first quarter 2008, with worldwide heavy-duty truck engine shipments down 30%; shipments to Chrysler down 45%; global medium-duty truck engine shipments down 42% and construction industry shipments down 69%,” the Cummins report said.

Caterpillar Inc. said April 21 that its North American on-highway engine business dropped 46% during the first quarter compared with the same time in 2008. This is Caterpillar’s final year in that market.

Paccar earned $26.3 million, or 7 cents a share, on quarterly revenue of $1.99 billion. In the 2008 first quarter it earned $292.3 million, or 79 cents a share, on revenue of $3.94 billion.

As a corporation, Daimler lost $1.68 billion, or $1.83 a share, on quarterly revenue of $24.4 billion. A year ago it earned $2 billion, or $1.93 a share, on revenue of $35.98 billion.

Daimler’s worldwide truck group lost $185.5 million on revenue of $6.42 billion. In the 2008 first quarter it earned $604.2 million on revenue of $9.49 billion.

Four of Daimler’s five divisions lost money, with only its bus unit turning a quarterly profit of $84.9 million. The Mercedes-Benz car unit had the greatest loss at $1.47 billion.

Volvo lost $503.3 million, or 25 cents a share, on revenue of $6.69 billion. In the 2008 first quarter it earned $671.8 million, or 33 cents a share, on revenue of $12.2 billion.

The truck division, the largest of the company’s six units, lost $283.9 million on international revenue of $4.46 billion. A year ago it had operating income of $706.4 million on revenue of $8.09 billion.

All of Volvo’s divisions lost money for the quarter except the aerospace unit, which earned $9.89 million.