Class 3, 4 & 5 Roundup

it's a Buyers' market in light trucks

TOM BERG • SENIOR EQUIPMENT EDITOR

Blame it on housing, mortgage-lending or both, but problems in those industries are further slowing the economy, softening demand for freight hauling and pulling down sales of all truck types.

The medium-duty segment, including Classes 3 to 5 (10,001 to 19,500 pounds gross vehicle weight), are directly impacted by economic conditions, and sales for those trucks are down about 10 percent in the first five months of 2007 compared to 2006.

And they were down almost twice that in the most recent months, indicating the slump is getting deeper.

That's still not nearly as deep as the depression in Class 8, where reduced freight shipments due to the cutback in new-home construction, and the pre-buy of pre-EPA '07-powered tractors and trucks, have slashed sales.

The slump in midrange trucks is not as deep because customers tend to buy them on schedules that are less affected by freight volumes. However, consumer spending is down because people are paying more for mortgages and gasoline and have less money for everything from cars to candy. That lowers truck usage by everyone, from merchants to tradesmen (though some of the latter might be busier with repairs of existing houses, and the former might be ordering and delivering more fix-it supplies).

It's definitely a buyers' market in light- and even medium-duty, as a perusal through any newspaper's auto ads will attest. Some of the come-ons are the usual clearance of leftovers from the old model year, but incentives for 2007s began earlier than usual, and even diesel-powered pickups are being discounted. Some manufacturers are promoting low-interest loans and/or price cuts to try to sustain sales.

Not everything's being price-cut. The Mercedes-built Sprinter van and cab-chassis sold by Dodge and Freightliner remains popular, and sales to large fleets (such as FedEx, DHL and UPS) have provided a strong endorsement of the product. The Sprinter has never needed a dollar in incentives since its launch in 2003, say marketers at Chrysler Vans LLC. Daimler is gone from that unit's name since the corporate split-up in early August, but the German firm still owns 19.9 percent of the new Chrysler, and it continues to supply the redesigned Sprinter, many of which are assembled in South Carolina.

Meanwhile, Dodge right about now is starting to supply rebadged Ram 4500 and 5500 cab-chassis trucks to Sterling, which will sell them as Bullets.

The latest signs in the economy mean a recovery in truck sales might not come until sometime next year. If the Federal Reserve Board lowers key interest rates, as some expect, and if the federal government moves to shore up the mortgage industry, as they're discussing, the economy could turn around faster. But it'll be gradual, and so will its effects on truck sales.

Trends And Non-Trends

Trends in vehicles and equipment include growth in Class 5 because buyers are either moving down from Class 6 or up from Class 4. One builder explains that a Class 6 truck can't carry that much more payload than the less expensive 5, and the 5 is more maneuverable and easier to drive. Class 4 trucks, on the other hand, are usually based on pickup designs that can't always stand up to the rigors of hard service (or so competitors insist). Many ambulance operators, for instance, are going to Class 5s to get stronger frames, bigger brakes, and a more robust powertrain.

Big pickups are a bright spot for several builders. International's XT series, GM's Monroe-modified C4500, and the new Ford F-450 factory-built pickup are examples of low-volume, but high-profit vehicles that didn't cost much to develop. They are "image" rigs rather than hard workers, even if some pull heavy RV, horse and boat trailers, and marketers at those companies enjoy talking about them. Other builders are watching how the F-450, in particular, does in the market to see if they should bring out their own versions.

One trend that hasn't materialized is a move to low-cab-forward trucks. The entry of Ford, International and Sterling into the Class 3 and 4 market was expected to generate interest that would benefit competitors. Buyers would see the maneuverability and maintenance advantages of LCFs, some thought, and try them. Hasn't happened. The new guys have eked out some market share, but at the expense of the others. The big majority of sales are still conventional trucks.

Marketers of cloned trucks – the Ford LCF and International CityStar, and the Dodge Ram 4500/5500 and Sterling Bullet – tend to tout their respective dealer bodies as a key advantage to customers. International says its 300-plus dealers operate 1,000 locations and sell and service only commercial trucks, so are superior to Ford dealers, who might be preoccupied with retail sales to Joe and Jane Public. Sterling sings a similar tune about Dodge dealers.

Of course, Dodge and Ford do not agree, and say they're continuing to strengthen their resources to cater to commercial customers.

Developments we outlined in our Class 6 and 7 Roundup last month continue to affect the way various truck manufacturers do business, including in Classes 3, 4 and 5. For example:

- General Motors' sale of Allison Transmission went forward quickly, with the $5.6 billion deal closing Aug. 7. Allison people who participated in a demonstration event for customers in Speedway, Ind., were all upbeat about the new ownership and what it might mean to the company. Most expected Allison to expand its production because it no longer must adhere to spending constraints imposed by GM, and the now privately held company can seek sales from more vehicle manufacturers. Then again, GM could look at alternatives to Allison's light-duty products.

- There are no announcements following spring and summer rumors that GM would like to sell its medium-duty truck business and that International Truck and Engine would like to buy it. Such a deal would enable International to replace revenue lost if the dispute with Ford causes a termination of their joint ventures, and build revenue if that rift is healed. One possibility is that International could build trucks for GM, as it now does for Ford, rather than take the entire business.

- Dissolving of the GM-Isuzu joint venture on Aug. 1 happened without being noticed by customers and not much by dealers, except perhaps in paperwork matters. The two companies now distribute their own LCF trucks, whether assembled by Isuzu in Japan or GM in the U.S. Their continuing alliances have both supplying trucks to each other.

- Isuzu believes the GM-built and -assembled Chevy/GMC W3500/4500 and Isuzu NPR Gas with GM's 6-liter gasoline V-8 might become a greater advantage when '07-model trucks with pre-EPA-'07 diesels are gone and customers see the price premium for the new engines. For Isuzu, it's as much as $8,000 retail (and about $6,000 to $7,000 in selling prices), so gas-powered LCFs might climb from a current 23 percent of LCF sales to 30 percent. Gasoline power makes sense for trucks that are lightly loaded and run under 25,000 miles per year.

All diesel-powered 2008-model trucks have EPA '07-compliant engines with advanced combustion, air-handling, and exhaust systems, plus bigger cooling systems, all costing thousands more to develop and build. Dodge has made a statement by holding the line on pricing, keeping its Cummins Turbo Diesel option at about $6,000 more than a gasoline-powered truck, the same as for the previous diesel. Most trucks sold up to the end of summer have holdover '06 diesels, so the various premiums for the new diesels are just being seen by customers.

And they've got a lot to see in the way of products, as our roundup of 12 builders' truck lines indicates.