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2016 Outlook For Trucks – The Forecast Drives The System!

Jan 29, 2016 Dave Scott heavyduty, Trucks, trucking, Forecast, Sales,

Dave Scott

When 2015 kicked into gear, no one was forecasting a truck market decline. Despite the existing lack of confidence in fixed investment a modest increase of around 2% was expected to take the total truck and bus market over 3500kg gross vehicle mass (GVM) up to 32200 units. It went the other way for a final total of 30611 – a decline of 3%. What will happen in 2016?

Truck & Bus Market	2013	2014	Industry Forecasts 1^st Quarter 2015	Actual 2015	% Change on 2014
BUS	1046	1253	1403	1119	- 10.7%
MCV 3,5 - 8,5t GVM	11584	11017	10911	10488	-4.8 %
HCV 8,5 - 16,5t GVM	5474	5467	5531	5599	2.4%
ExHCV > 16,5t GVM	12820	13814	14356	13405	- 3.0%
TOTAL	30924	31551	32201	30611	- 3.0%

The heavy bus market took the biggest percentage decline-hit at 10,7% but does not represent a big unit volume. The biggest 2015 loser in volume – 529 units – was the medium truck segment, while the heavy market gained a minor 2,4% and extra heavies dropped 3% on 2014 for 399 units.

A serious decline in the value of the Rand meant that extra-heavy segment sales were inflated in the last quarter of 2015 by deals that ‘purchased the future’ against looming price increases. Among these sales were risk-free, guaranteed buy-back transactions that also bring into question the sustainability of ExHCV sales for 2016

Exchange rates will hit trucks hard

2015 ended in an exchange rate panic, when the Rand touched R16 against the greenback on 11 December 2015 – this after President Jacob Zuma replaced Finance Minister Nhlanhla Nene with David van Rooyen, before re-appointing Pravin Gordhan to his old post.

But the Rand broke through R16 against the Dollar in morning trade on Thursday 7 January 2016, following a softer-than-expected Purchasing Managers’ Index reading, while global markets reacted to nuclear bomb testing in North Korea. Adding to the pressure, the Rand also faced a depreciating yuan following the Chinese stock market ‘circuit-breaker’ shocks resulting in a ‘perfect investor storm’.

And while all of this is happening, the oil price hit 32 USD to the barrel (11 January 2016). Unfortunately our Government cannot even bank this benefit due the weakening Rand and forecast to decline even further.

The exchange rate drama amplifies market rumblings about the survival of Freightliner in SA. The trend hardens even more in difficult times for small volume truck manufacturers as truckers move towards more established brands. The word out there is that Renault trucks are finally calling it quits in the South African market – hmmm!

The Naamsa flash report states the: “industry trading conditions remained intensely competitive with over 52 brands and 2 595 model derivatives, in the new car and light commercial vehicle sectors, competing for consumers’ franchise”. The new prices for imported models can be expected to take a serious toll in the car and light commercial segment where many dealers cannot survive off parts and service to absorb overhead costs.

When seen against the total industry, truck volumes are small but vital to our economy as everything goes by road. But there are major obstacles in 2016 apart from the exchange rate:

SA exporters benefit from a weak Rand, especially rewarding for farm exports, but the current disastrous, multi-year drought will make South Africa a net importer of food. The devastating, El Niño-driven interior parchedness will drive more people into urban centres unsettling millions of people and impact on society itself, not just agriculture.
The SA prime lending rate – 9.75% effective from 20 November 2015 – looks to be trending over 10% in 2016. Hopefully prime will not test 11%.
As Dr Cees Bruggemans comments: “Also it would help if government were to do more to restore confidence in the economy, so that citizens may be more willing to be more enterprising, taking risks they won't take if too anxious.” Bruggemans continues: “The caricature is a spendthrift government out of control, eager to borrow to the limit and raise taxes to get its hands on more resources.” Indeed, why invest in a truck?
Bruggemans adds: “Further Rand weakness will be imposed from the outside on the back of Chinese strains, Fed uncertainty, Middle East eruptions. And yet further bolstered by our ongoing lack of domestic policy focus, sliding performance, questions about fiscal stabilisation and doubtful credit ratings. It suggests a Rand heading deeper into 16-18:$ territory.” This is amplified in Bruggemans comment on 11 January 2016 where SA suffers from “Growth stagnation and slipping fiscals amounting to a slow-mo credit rating banana-peel towards junk. Such junk status is in any case already mostly priced in on account of the Nene fiasco and the market rethink that followed in its wake.”
But the used truck market will benefit from new truck price increases – and those ‘guaranteed buy-backs’ will not hurt so much.

What’s the truck & bus forecast for 2016?

Truck & Bus Market forecast scenarios	Actual 2015	NAAMSA Forecast 2016	Forecast 2016 down 5%	Forecast 2016 down 7%
BUS	1119	1000	1000	900
MCV 3,5 - 8,5t GVM	10488	10200	10000	9900
HCV 8,5 - 16,5t GVM	5599	5500	5100	5000
ExHCV > 16,5t GVM	13405	13500	13000	12700
TOTAL	30611	30200	29100	28500

There’s no reason for any truck market increase – how far will it fall, and which segments will take the biggest hits? The van market must be stripped out of the MCV segment to build its own sector forecast. What will happen in the over-supplied ExHCV segment – which horsepower sector and application will suffer the most under current conditions? But water tankers are going to be needed in the face of the drought disaster – in which segments can these be factored in?

Conclusion
ESKOM has not been resolved – electricity price increases mount up, while in 2014 we were told to expect rolling blackouts as a permanent feature of our lives for the next five years.

Never mind 32 USD/barrel, fuel-saving disciplines of the past must remain entrenched to deal with the future. There is much more to the fuel price than a market glut while the ‘Philistines and Syrians’ chase each other across the burning hot sands in the Middle East. It’s very dangerous to drop one’s guard and behave as if the USD $110/barrel days will never return.

And regardless of all the negativity there’s still a truck market out there which needs to be understood and forecast – after all, the forecast drives the system!

heavyduty, Trucks, trucking, Forecast, Sales,

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