Market Overview

Navistar Cuts Medium-Duty Truck Production In Ohio

Navistar Cuts Medium-Duty Truck Production In Ohio

Navistar International Inc. (NYSE: NAV) is the first major truck maker to confirm a reduction in production rates in the current economic cycle.  

"Due to the cyclical nature of the business, we will be reducing line rates at our Springfield [Ohio] Assembly Plant," spokeswoman Lyndi McMillan told FreightWaves on Wednesday, August 15. "This cycle is normal for our business, and this is not a shift of production to other locations."

The cutbacks are in Class 5-7 medium-duty trucks, whose industry-wide inventories are ballooning even as retail sales are up 6 percent year to date through June, according to ACT Research. The current order backlog is within a couple hundred units of a year ago at 63,500.

The issue is a 30 percent increase in inventory – 55,400 unsold medium-duty trucks in June compared to 42,700 the same month in 2018. Medium-duty truck orders were down 20 percent in June. Class 8 orders were off 64 percent year-over-year. Both came against tough comparisons. New truck orders were near a fever pitch in mid-2018. 

"These medium-duty trucks support a lot of service businesses, and consumer business is doing pretty well," said Kenny Vieth, ACT president. "This is a trimming of the sails."

Navistar declined to say whether layoffs would be part of the cutbacks. The Springfield plant builds International brand medium-duty trucks as well as medium-duty trucks for General Motors Co. (NYSE: GM). 

McMillian declined to say what products were targeted or whether Navistar's plant in Escobedo, Mexico, which makes medium- and heavy-duty models, would cut line rates.

Higher expectations

During its second quarter earnings report in June, Navistar raised its estimate for 2019 industry volumes by 20,000 units and increased the company's 2019 revenue expectations. CEO Troy Clarke told analysts the company's order backlog was solid and he anticipated the trucks would be delivered.

"I think the economic fundamentals are still there that support not only the backlogs, but I think some opportunities are yet to be discovered in 2020," he said.

Heavy-duty production watch

Heavy-duty truck orders across the industry have fallen for eight consecutive months even as the Freightliner unit of Daimler Trucks North America and the Kenworth and Peterbilt brands of Paccar Inc. (NASDAQ: PCAR) began accepting orders early for a second consecutive year.

During analyst calls covering second quarter earnings in July, executives at Volvo AB and Daimler AG said they were prepared to make production cuts in the second half of the year if necessary.  

Only Paccar said it was confident that its 36 percent share of the U.S. industry's 188,000-unit heavy-duty backlog at the end of June would sustain production through the rest of the year and into 2020.

Image Sourced from Pixabay


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