CV experts brace for continued declines in the COVID-19 era

As Class 8 production estimates continue to drop from 2019 lows, commercial vehicle suppliers are concerned about forecast accuracy, demand volatility and overall weakening of sales due to the pandemic.

The outlook for commercial vehicle (CV) suppliers has been bleak, and because there are more questions than answers right now concerning the COVID-19 pandemic, it isn’t projected to get better anytime soon.

CV experts have seen a two-year decline as both prices and sales have plummeted across all segments — on- and off-highway, OE, OES and independent aftermarket — with sales falling into the negative territory in the third quarter of 2019. Now, the spread of COVID-19 has led to an even more dismal outlook, and analysts project it will lead to a third consecutive quarter of declining sales.

The Heavy Duty Manufacturers Association (HDMA) and MacKay & Company held the first of what is expected to be a series of webinars on the impact of coronavirus on CV. During the April 8 webinar, Richard Anderson, director of market research and analysis for HDMA, explained that the OE Class 8 production estimate for HDMA members was well below 200,000 units when just a year ago they were in excess of 310,000 or 315,000. Construction, agriculture, mining and off-highway are all down, leading to an “overall very pessimistic outlook,” he pointed out.

“COVID-19 has done nothing to help this. There are three main concerns for suppliers: forecast accuracy, demand volatility and overall weakening of sales,” he said. “Over the last two years, we have seen steady decreases in the levels of hiring, production and inventory. The projected challenge for 2020 was compensating for the overbuild versus natural replacement on the OE side and capacity absorption across all parts of the business. The pandemic has done nothing to improve these underlying challenges that our members felt they would be facing this year.”

Bob Dieli, an economist with MacKay & Company, cited preliminary U.S. Bureau of Labor Statistics (BLS) data indicating the U.S. economy shed more than 701,000 jobs in March. He explained that number is on the low side and will likely increase, as BLS labor surveys occur in the middle of each month. Dieli added that trucking employment always takes a hit during recessions and is something to keep an eye on.

Dieli projected the likelihood of a structural “W-shaped” recession, meaning there will be enough changes taking place to suggest that the economy will not operate the same way it did before COVID-19.

It is unknown how large the first leg of the W will be and how long it will take to reach its ultimate length, explained Dieli. The second leg of the W will consist of the efforts to rebuild the supply chain as well as the effects of people going back to work. This is where we will likely see a boost in economic activity.

“The third leg of the W, that second down, I think is going to be a result of kinks in the supply chain,” he added. “We have dislocated the supply chain as well as stretched it out. Eventually, we will get to the final leg of the W, which will show the resumption of activity.”

Over the past four weeks since the COVID-19 outbreak in the U.S., HDMA researchers and analysts report that roughly 61% of suppliers in North America have closed their facilities. And 52% of members have received force majeure letters from their suppliers explaining closures.

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