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U.S. Truck Market Hasn't Hit The Skids --Eaton CEO

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04/24/2012 | 03:42am CEST
   By Bob Tita and James R. Hagerty 
   Of  
 

The U.S. commercial truck market should generate solid growth this year after truck makers align their production with moderating demand, Eaton Corp. (>> Eaton Corporation) Chairman and Chief Executive Alexander Cutler said Monday.

Cutler, whose company is a major supplier of transmissions to the truck market, dismissed recent assessments by analysts that the North American truck market has stalled after three straight months of lower year-over-year orders. Rising fuel costs, scattered reports of orders being cancelled and factory production cuts have added to the bearish outlook for the truck industry.

"We're not panicked," said Cutler in an interview. "You've got people over reacting to pieces of data."

Cleveland-based Eaton on Monday reiterated its earlier forecast that production of heavy-duty trucks in North American will reach about 300,000 vehicles, roughly 16% higher than the 259,000 vehicles built in 2011. Cutler though acknowledged that production volumes have been out of whack lately. He said truck makers ramped up production late last year to accommodate a surge in orders. But the accelerated volumes extended into 2012 with production recently running at an annualized rate of about 325,000 vehicles, even though March orders came in at annualized rate of about 206,000 trucks.

Truck maker Paccar Inc. (PCAR) earlier this month announced that it plans to reduce heavy-duty truck production for its Kenworth brand after orders declined 10%. The company intends to reduce its workforce at an Ohio assembly plant by 10%. Paccar will release first-quarter earnings on Tuesday.

Cutler said he expects orders to accelerate from March, which he described as a seasonally weak month because truck markers are transitioning to a new model year, prompting some truck buyers to delay or cancel their orders to obtain the new truck models.

"Cancellations are always higher in March and April," he said.

Other aren't convinced the weakness is temporary. Kristine Kubacki, an analyst in St. Louis for Avondale Partners, expects heavy-duty truck production in North American to be no higher than 255,000 to 260,000 trucks this year.

She maintains a federal tax program to encourage purchases of capital equipment siphoned truck sales away from 2012 as big fleet moved their purchases to 2011 to that advantage of the program, which expired at the end of last year. Kubacki on Friday lowered her ratings on truck makers Paccar and Navistar International Corp. (>> Navistar International Corporation) and parts manufacturer Meritor Inc. (>> Meritor Inc)

"Given the current inflated inventories and production levels for the industry, we could be looking at 30%-plus production cuts in the back half of the year," she said in a note to investors.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; [email protected]

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