Industrial Production trends are the main drivers of truck sales
Looking through a range of indicators, we conclude that industrial production trends provide the best indicator of heavy truck demand. With the European outlook gloomy at best, we think truck demand will fall in 2013; we do not expect a pre-buy. Brazil though seems to be bottoming and we expect a rebound in 2013. We expect the US to be flat in 2013 but with downside risk.
Pre-buys are rare and we don't expect one in 2013
Looking back over the last 20 years, we conclude that emission-driven pre-buys are rare. The two most notable were in the US (2006) and Brazil (2011). Both were inflated by economic booms and a step-change in emission standards. As Euro 6 is an incremental change and as Europe is not exactly booming, we do not expect a material pre-buy in 2013.
European demand seems to be slowing
Commentary from the recent Volvo and Scania CMDs and anecdotal industry evidence suggest that European truck orders are weakening. We expect the European market to fall by about 5% in 2013.
North America is growing but with weak orders and excess inventory
Although order intake has been weak in recent months, we still expect the NAFTA class 8 market to be about 260kunits in both 2012 and 2013. There are signs of excess inventory and production cuts may be needed to reduce stocks. We see downside risk to our forecasts if order intake fails to accelerate.
South America appears to be bottoming and should rebound in 2013
After a difficult 2012, driven by the adoption of the Euro 5 and weak economic activity, we expect the Brazilian market to rebound strongly in 2013. The government has introduced subsidised financing and GDP growth is expected to accelerate in 2013. Upside risk comes from the expected record grain harvest next year, but new regulations for trucks drivers, which include longer resting periods, have increased operating costs. The availability of low sulphur fuel, which is needed for Euro 5 trucks, is still a problem, although this will improve over time. We expect the Latin American heavy truck market to grow by about 20% in 2013 but the large number of complicating factors make forecasting (even) less reliable than normal.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.