By John Blodgett, MacKay & Company
Happy New Year! It has been a while since I have provided an update on our outlook for the commercial vehicle aftermarket, so here we go. There are a number of factors that impact the parts aftermarket as we look out at 2020.
First, there is the forecasted economy, which in economic technical terms looks good (not great) and there are some concerns it could change from good to something less than good later in the year. The recently signed Phase 1 trade agreement with China should help, as well as USMCA (the new NAFTA) agreement. With Great Britain pushing forward with Brexit, there looks like there will be more clarity to have a trade agreement with them at some point. We also have a presidential election this year, just to make things even more exciting.
Truckable Economic Activity (TEA), MacKay & Company’s proprietary measurement of the trucking economy, has seen diminishing growth rates compared with 2017 and 2018; they were about half as high in 2019 and they could be down further from that in 2020 — but still positive (growth).
So, the economy may not be as strong as what we saw in 2017 and 2018, but it is still forecasted to be positive growth, which is better than the alternative.
Bill Strauss from the Federal Reserve of Chicago and our own economist Bob Dieli will be speaking Monday at Heavy Duty Aftermarket Dialogue on the economy and trucking, so if you aren’t attending — look for reviews of their comments on this site.
The folks at FTR are forecasting retail sales of Class 8 trucks at 198,000 for 2020, which is down 28 percent from 2019, but this is still above average sales for the last 20 years and just a little under the average of the last 10 years.
We anticipate the operating population (Class 6-8 trucks, school buses and trailers) to be up 1 percent in 2020, not a huge increase, but more is better. In the last five years alone, truck and trailer manufacturers have sold 3.3 million units into the market, which bodes well for the aftermarket.
Fleet utilization also fell off in the fourth quarter, more so than usual and fleets we survey forecast their utilization for the next six months to be down. But even if these declines occur, fleet utilization has been running very strong the last few years, meaning the decline brings fleet utilization to average levels for the last 10 years.
MacKay & Company has a few indexes in which we track parts sales, from component manufacturers to distribution points and from distribution points (truck dealers and independent parts distributors) to end users (fleets). These have all been trending down and some are negative at present, but this is after a couple very strong years at record levels, so the levels that exist today are still very positive.
Pricing impacts are about normal — based on a survey of several hundred distributors of parts — we are expecting a price increase of 1.5 percent in 2020.
When we combine all of these factors, we are estimating parts aftermarket growth of 1 percent in 2020 compared with 2019, not great, but being slightly up over a very strong year is not bad. We are still in the longest economic expansion on record, so our memory of actual economic declines is a little dated.
There is no reason to hit the brakes to grow your businesses; it may be an even better environment to grow your business if your competitors decide to pull back. This is a good time to pay more attention to this publication and others as the economy is more volatile and certainly factors we track will change over the year. Could things get more negative than what we currently see as the outlook in 2020?
Certainly there are no guarantees, but you already knew that.
John Blodgett has worked for MacKay & Company for more than 20 years and is currently vice president of sales and marketing, responsible for client contact for single- and multi-client projects. He can be reached at [email protected].
