Big-Rig Truck Makers Forced to Slow Down

The industry that builds big trucks is suddenly slamming on the brakes.

With commercial trucking firms whipped by rising diesel-fuel costs, driver shortages and rising interest rates, orders for new heavy-duty trucks are dropping fast. That’s forcing the truck makers to slash production and lay off thousands of workers.

Navistar International Corp., which makes the International brand of trucks, became the latest casualty Tuesday when it announced plans to cut 1,100 jobs--or 6% of its employees--to adjust to the slowdown.

That came only a day after industry leader Freightliner, the truck-making unit of auto giant DaimlerChrysler, announced plans to lay off 3,745 U.S. and Canadian workers--or a whopping 19% of Freightliner’s worldwide work force--over the next few months. The company said it expects North American sales of heavy-duty trucks to plunge by up to 25% this year.

And earlier this month, Paccar Inc., maker of the Kenworth and Peterbilt line of trucks, said it was laying off 430 workers at a Tennessee plant because of slowing orders.

“The North American truck market is ugly, and there’s no reason to think it’s going to get any better any time soon,” said Joanna Shatney, an analyst with Goldman, Sachs & Co. in New York. “It’s probably going to take part of next year until we get the problem fixed.”

The slump does not appear to be a precursor to any sharp slowdown in the U.S. economy, industry executives and analysts said. Freight shipments have softened a bit in recent months, but the driver shortage is evidence that shipping volumes remain strong for the trucking companies that buy the big “Class 8” 18-wheelers and medium-size trucks.

Rather, the main problems are that the truck makers have enjoyed two consecutive years of record sales, including U.S. shipments of 262,300 heavy-duty trucks in 1999, according to the American Trucking Assns., the industry trade group.

But now the trucking firms--faced with the higher fuel costs, interest rates and driver shortages--are cutting back orders for new vehicles. That has led to a glut of both new and used trucks.

“We can’t point to the economy,” said Mike Brown, a spokesman for Consolidated Freightways Corp., a major trucking firm that buys mostly Freight-liners. “Our fleet is simply in solid shape and we don’t need any more trucks.”

John Horne, chairman of Navistar, said in a statement that it has been a “long-anticipated downturn” because of the surge in sales in 1998-99. But Navistar, Freightliner and the other producers had hoped to maintain production rates, expecting that the backlog of unsold trucks would have dissipated by now. That did not happen.

Trucking firms aren’t the only ones cutting back on orders for new rigs. Independent drivers also are delaying purchases, and thousands of others are being forced to relinquish their trucks because they can no longer afford to run them.

Various estimates say that more than 35,000 trucks have been repossessed or turned in by independent owners, mainly because they’ve been squeezed by the jump in fuel prices, said Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Assn., a trade group based in Grain Valley, Mo.

The vehicles are “being voluntarily turned in because they can’t make the payments on them” in the face of higher diesel prices, Spencer said. “That makes for an even bigger glut of trucks available to purchase.”

Navistar’s layoffs were announced with its fiscal third-quarter results, in which the company said earnings--exclusive of one-time gains and charges--inched down to $76 million, or $1.27 per diluted share, from $77 million, or $1.17 per share, a year earlier. Sales in the quarter ended July 31 were nearly unchanged at $1.9 billion.

Navistar’s stock fell $1.94 a share to close at $37.13 after its announcement. DaimlerChrysler slipped 38 cents to finish at $56.06, both on the New York Stock Exchange. Paccar fell 94 cents to $42.19 on Nasdaq.

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Truck Slump?

Builders of heavy-duty trucks, after enjoying two years of record sales, are now slashing production and laying off workers in the face of slumping orders. Here are the industry’s recent sales figures, in thousands:

1999: 262,300 trucks

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Source: Ward’s Communications