Surge in Class 8 Inventory Threatens Q1

In a concerning development for the US trucking industry, a convergence of factors, including sustained high build rates, a declining trend in tractor sales, and early-season sales seasonality, raises the risk of a Class 8 inventory surge in the first quarter of the upcoming year. Recent data reveals a notable uptick in inventory accumulation, with 4,300 units amassed in the past two months ending November—exceeding the 3,300 units collected in the preceding twelve months, as highlighted in the latest release of the North America commercial vehicle forecast.

Kenny Vieth, President and Senior Analyst at ACT, remarked on the shifting dynamics: “Something we marveled at, as late as this September, was the close correlation between build and sales that had kept Class 8 inventory levels, both nominal and relative, near perfectly positioned very late into the cycle. Increasingly, with inventories already rising and the sales calendar becoming unfriendly in early 2024, the data suggest this cycle will not provide an ‘it’s different this time’ outcome, with more inventory accrued in the last two months than the preceding twelve months.”

Vieth acknowledged a potential silver lining, stating, “If there is a silver lining, we assume that much of the end-of-2023 inventory build occurred in California because of expensive and complex CARB regulations that went into effect in January.”

Adding to the concerns, Vieth concluded, “The Class 8 forecast has anticipated a production slowdown beginning in Q1. As any significant inventory stockpiling won’t occur until January and February, we are probably early in our call for build rate cuts sooner. The US Class 8 tractor sales rate has been trending lower since Q2’23, and even in good markets, January and February are far and away the worst months of the year for retail sales.”

The North America Commercial Vehicle (NA CV) forecast serves as a comprehensive report on the trucking industry, offering insights into commercial vehicle demand, tactical and strategic market analysis, and forecasts extending over five years. The report aims to equip Original Equipment Manufacturers (OEMs), suppliers, investors, and other market participants with the necessary information to make informed decisions in a traditionally cyclical market.

Source: ACT Research, January 11th 2024