Truck Makers Hit Hard by Covid

May 19, 2020

Covid-19 has unhinged the U.S. economy as authorities acted to limit spread of the disease by ordering people to stay home. Many worked from home, but many businesses shuttered. Some forms of construction stopped, and large segments of the economy were disrupted.

Manufacturers of construction trucks shut factories as orders plummeted below what was expected already for a down market in 2020. One expert tracking the economic effects is Steve Latin-Kasper, director of market data and research at the National Truck Equipment Association. In mid-spring, just as some manufacturing reopened and limited consumer activities resumed, Construction Equipment caught up with him to discuss vocational truck markets.

Construction Equipment: How has Covid-19 disrupted sales and production in the work truck business?

Steve Latin-Kasper: Before the onset of Covid-19, the commercial truck chassis sales forecast was already negative. Total sales were expected to fall about 10 percent in 2020, and Class 8 sales were predicted to decrease about 20 percent. As of May, the forecast has been revised due to Covid-19. Total sales are expected to drop about 15 to 20 percent, and a 25 to 30 percent decline is anticipated for Class 8 sales.

CE: When will things return to normal?

SL: The immediate impact [of Covid] was felt in the form of some cancellation of orders and the majority of chassis OEMs shutting down production at the end of March. Chassis production is expected to start again in May for most OEMs (some may wait until June). Since commercial truck chassis supply chains are global, and suppliers will be impacted by different factors at different times in different countries, “normal” supply coordination will not likely occur until sometime in 2021.

CE: How has this affected production of vocational trucks chassis and bodies?

SL: A sustained slowdown in construction would certainly put downward pressure on commercial vehicle sales. Prior to the onset of the pandemic, 2020 was expected to see a 5-to-10-percent contraction from 2019 levels but overall remain a good year for vehicle sales. With the onset of Covid-19 and the global economic shutdown, forecasts for the upcoming year are being revised throughout the industry. Given that states are just starting to restart and emerge from their specific stay-at-home orders [in May], the next two or three months should bring a significant amount of clarity to the overall impact on commercial vehicle sales.

A chain is only as strong as its weakest link. Not all companies involved in the automotive industry’s supply chain will have every employee return to work when plants reopen. --Steve Latin, Kasper, NTEA

CE: What were the effects of truck OEMs shutting down?

SL: There was a ripple-down effect on suppliers. When original equipment manufacturers shut down, it didn’t make sense for suppliers to continue producing, so many temporarily halted operations as well. This negatively affected their suppliers, and so on throughout the supply chain. After OEMs continue producing again, an old phrase—a chain is only as strong as its weakest link—may come to mind. Not all companies involved in the automotive industry’s supply chain will have every employee return to work when plants reopen. It’s impossible to say which businesses and industries will be affected and to what extent, but there will be weak links that will cause bottlenecks.

CE: How much more severe is this downturn than in 2008-09?

SL: Aside from second-quarter 2020, the current recession will not be more severe. The U.S. economy is expected to start growing again in the fourth quarter of this year.

Current consensus forecasts indicate gross domestic product (GDP) may fall by as much as 25 percent in the second quarter, but it’s expected to level off in the third quarter and start growing again in the fourth by 5 to 10 percent. In total, GDP would end the year about 5 percent below 2019. 

CE: How do fuel prices fit in?

SL: Lower fuel prices will not likely have a large impact on consumer spending because people aren’t driving as much. Most miles are for commuting: As of April, 20.5 million people weren’t doing so. Fuel prices did rise slightly at the end of April, as futures contracts for May and June accounted for future demand, but it’s too early to tell whether or not prices will continue trending up. At some point, there may be a global storage problem similar to what the U.S. experienced at the end of April. Oil prices could potentially fall below zero again.

CE: How has the construction-truck segment been affected?

SL: Construction activity has slowed substantially. In the much larger residential segment, about 790,000 jobs were lost in April—roughly a 13-percent decline from March as a results of job sites being shut down due to states implementing stay-at-home orders. Nonresidential jobs lost were about 80,000 (about a 9-percent drop). The accelerated drop in construction employment is likely to recover significantly as states begin loosening work restrictions and job sites that were idled become active again.

How truck makers respond to Covid-19

The government shutdowns caused auto and truck builders to interrupt production. Ford, General Motors, and FiatChrysler did so, and cautiously reopened as conditions warranted. Heavy-truck plants operated by Daimler Trucks North America, Navistar International, Paccar, Mack, and Volvo paused in March with expectations that they would reopen in April and May. Adjustments were sometimes necessary as the pandemic stretched out amid warnings of a new spikes of infections. When production resumed, it was usually at reduced rates and with workers wearing face masks and standing farther apart.

“We are going to great lengths to ensure the safety of our employees and continue to assess the situation daily,” DTNA, maker of Freightliner and Western Star trucks, said in a statement. “The safety and well-being of our employees is our priority as we return to work to support the critical essential infrastructure of the country. In addition to providing PPE at our locations, we have localized task forces comprised of both plant management and union labor representation at each of our manufacturing facilities to safeguard the health of our employees and to continue to assess our measures daily.”

Volvo and Mack, corporate sisters under Volvo Group, planned plant re-openings, pending approval by authorities near their plants in Virginia and Pennsylvania, respectively, and the ability of suppliers to resume feeding parts and components. The Volvo-Mack engine, transmission, and axle plant in Maryland is an example of a supplier that needed to reawaken. Paccar, owner of Kenworth and Peterbilt in the U.S. and DAF in Holland, also planned re-openings in Ohio, Texas, and Washington state as conditions allowed.

“It’s going to be done on a location-by-location basis in a phased manner,” Paccar CEO Preston Feight said at the time. “We will work through the rest of our plants in the coming weeks and make sure we take care of the employees and bring the truck factories back up and running.”

To be sure, manufacturers had expected a slowdown because the expansion that began in 2009 couldn’t continue indefinitely. The order boom had cooled and everyone predicted lower 2020 sales levels in a business that’s famously cyclic. Yet truck builders were as surprised as anyone at the sudden unfolding of coronavirus events.

“The extent of this virus is unprecedented, and our personal lives, businesses, and global economies are being impacted by events beyond our control,” Navistar CEO Troy Clarke said in mid-April. Navistar, which had closed its medium-duty plant in Ohio and its heavy truck plant in Mexico, was still slowly recovering financially from product and sales crises in recent years, and it considered selling debt instruments to raise money to ride through the emergency. Other builders said they had sufficient reserves to weather the coronavirus storm.