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October 25, 2019 11:45 AM, EDT

With Strike Set to End, Mack Workers Will Return to Softening Market

Mack truck grille Luke Sharrett/Bloomberg

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With the Mack Trucks strike slated to end, a recent report from parent company Volvo Group provides a look at the heavy-duty truck market that 3,500 workers will return to next week.

First, where the market has been: The company delivered almost 50,500 trucks in North America through the first nine months of the year, up 27% from a year earlier as its Mack and Volvo Trucks brands worked through a hefty order backlog.

Next, where it’s going: Volvo took in just shy of 18,000 orders in North America during the same time period, a 73% drop from the year-ago period as the cyclical market started to slow and dealer inventory remained high.

“We see the anticipated correction coming in our main markets,” Volvo Group CEO Martin Lundstedt told analysts Oct. 18, six days before Mack and the United Auto Workers announced they had reached a tentative agreement.

So the Mack strike, which started at 11:59 p.m. Oct. 12 and involved more than 3,500 employees across Pennsylvania, Maryland and Florida, came at a time when truck manufacturers already were adjusting production to meet reduced demand in the market. For example, even before the strike, Mack was planning to put its Lower Macungie Township assembly plant, which employs about 2,400, on temporary layoff for two weeks during the fourth quarter. Not long after, Daimler Trucks North America disclosed it was cutting about 900 workers across two U.S. plants as the market softened.

In its third-quarter report, released Oct. 18, Volvo mentioned possible negative financial consequences if the Mack strike continue for “an extended period of time.” As it is, the strike this week temporarily idled Volvo Trucks’ massive assembly plant in Virginia, which has 3,000 workers, because the facility is not receiving engines and transmissions from Mack’s Hagerstown, Md., powertrain plant.

Still, the strike over the past couple of weeks likely hurt Volvo much less than if it had occurred six months ago when the market was on fire and manufacturers were trying to keep up with demand, noted Steve Tam, vice president of ACT Research. UAW’s previous three-year contract with Mack expired Oct. 1, after which the two sides continued negotiating until an extension agreement expired Oct. 12.

“With respect to the timing of the strike, it’s considerably less painful now given the state of the industry and manufacturers needing to reduce production,” he said.

How much that affected UAW’s leverage in negotiations is unclear. Mack and UAW declined to disclose details of the tentative agreement until union members were fully briefed.

Comments from Lundstedt on Oct. 18 indicated Volvo was ready to hold its ground in a dispute that centered on what the union called job security. UAW Local 677 leaders were looking for Mack to commit to keeping all heavy-duty truck assembly for the North American market in the Lehigh Valley — as is the case today — while Volvo was working toward a sustainable agreement that could guarantee the business’ future as it grapples with competitors that build trucks in Mexico.

UAW Local 677 expects a staggered ramp up starting Oct. 28, followed by getting the full system up and running by the middle to end of next week.

With the softening market, which came after about two years of strong demand, Mack spokesman Christopher Heffner would not say whether additional production adjustments would be needed, noting that Mack preferred not to discuss production plans.

For 2019, Volvo is forecasting retail sales in North America of 340,000 heavy-duty trucks, which it expects to drop in 2020 to a more normal level of 240,000 vehicles.

ACT Research, Tam said, sees the market reaching 332,000 in sales this year, followed by a 23% drop next year to 255,500.

“Even without the strike, the industry was looking at reduced production rates in the fourth quarter,” he said.

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