If you haven’t noticed, the new truck market is awash with inventory. But experts say the market doesn’t have an inventory problem.
At least not yet.
After cresting at nearly 90,000 units in its inventory last month, the Class 8 market saw its number of available new trucks drop slightly in October. Additionally, while Class 8 inventory totals have more than doubled since the buying frenzy of 2021, the market’s inventory to sales ratio has nudged up only incrementally.
At 3.1 months in October, the ratio is above historical averages (2-2.5 months) but not as high as the nearly 5-month ratio that appeared in the early months of the pandemic. It’s barely higher than the market peaks experienced in 2015 and 2016 during a normal market cycle.
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It also helps the inflated new truck inventory isn’t solely found on dealer lots.
New truck inventory refers to any truck that’s rolled off a production line but hasn’t yet landed in a customer’s fleet. In the heavy-duty sector, experts say a lot of those trucks are still on their way to being delivered.
“I think it comes back to a few things,” says Kenny Vieth, president and senior analyst at ACT Research. Vieth’s firm has tracked new truck inventories for than a decade. He admits current totals are high, but says conversations with OEMs about the numbers haven’t raised alarm. The vocational market is one reason they cite, he says.
“We still have lingering supply constraints in the body builder space, and demand in that sector has been so strong for the last couple of years,” he says. “We think there are a large number of trucks still in that channel that will be delivered once they’re done.”
Keith Ely of KEA Advisors agrees.
Ely says his company advises customers to turn true stock units — trucks purchased by a dealer that were not ordered for a customer — in 60 days or less. He says while softening market demand has definitely put pressure on dealers with trucks to achieve that, KEA’s research indicates most units in the sales pipeline are not sitting unclaimed. They’re being upfitted and prepared to be moved when needed.
“With vocational units that’s a different metric,” Ely says. “You may be willing to sit on a truck a little longer because you know someone is going to need it.”
Ely admits that can be a substantial flooring expense, but says it may be worthwhile if a dealer knows its customer base and can accurately predict how many extra units to purchase to meet sudden demand. His colleague Allen Phibbs says where dealers get hurt on inventory is when they sit a truck without knowing when and where it can be sold.
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“I think two years ago it didn’t matter how many trucks you had [in inventory] because you knew you were going to move them. That’s not the case today,” he says.
Phibbs says KEA always counsels dealer clients to stay in constant contact with a customer after an order is placed so the dealer knows when the customer wants to receive the units, or if their needs may change.
Scott Oliphant says that tactic works for Kenworth of Louisiana. Oliphant says across his company’s seven locations inventory has built up “but remains manageable.” Most of the units are a variety of commonly spec’d trucks the dealer orders annually to support local and regional customer needs. He says flooring costs are factored into those purchases when they’re made, while customers also will occasionally “agree to pay flooring beyond terms” when their needs evolve.
“We have relationships with customers who have vocational bodies and different fleet needs, so we tend to be transparent on flooring and have an open discussion with the customer on that,” he says.
The KEA duo supports that open dialogue. They say miscommunication and poor communication with customers about new truck orders can not only drive up inventories and cost dealers on flooring, it also can limit access to future sales.
“OEMs are giving additional build slots to dealers who have deals lined up,” says Phibbs.
Overall, FTR’s Dan Moyer, senior analyst, commercial vehicles, says Class 8 factory shipments for the 12 months ending in September were approximately 313,000 units. Retail sales were nearly 293,000 units.
Moyer says if a notable improvement in the truck freight market during that time had occurred, retail sales likely would have been higher and the growth in inventories would have been less. He says while part of the growth in inventory is attributable to aforementioned delays at vocational body builders/upfitters, a majority of the growth in inventories is due to the challenging on-highway freight environment and resulting lower level of retail sales, as well as high sustained build rates though the summer months.
However, with production in recent months heading lower and an uptick in retail sales, Moyer says “we are getting closer to healthier and more normalized levels month by month as we head into 2025.”
Finally, experts also note for many dealers, stocking habits are forcibly evolving.
Dealers in California have been crushed this year by new regulations that limit their ability to sell new diesel-powered trucks. And with other states set to enact California’s regulations in 2025 and beyond, dealers in some markets are intentionally over ordering to have vehicles available for customers who may have limited future order potential.
“I think there’s been some pre-stocking going on,” says Vieth.
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Moyer adds that during previous freight market downturns, manufacturers typically reduced production to maintain normal inventory levels. However, this time, production may have been kept higher for most of the year in 2024 in anticipation of both a truck freight market recovery — which ultimately did not occur — and a potential EPA 2027 pre-buy expected later in 2024, which also failed to materialize.
But a pre-buy is still expected, albeit in 2025 or 2026. As is a freight rebound. Demand in some areas is already on the rise.
“We have seen an uptick in quote and deal activity since the election, so we anticipate that will continue into 2025,” Oliphant says.
