Daimler Trucks North America halted production of Freightliner and Western Star trucks in the United States and Mexico on Monday, and PACCAR Inc. (NASDAQ: PCAR) said Tuesday it had suspended global truck production by its Kenworth, Peterbilt and DAF brands until April 6.
Daimler and PACCAR accounted for about 68% of North American truck production in 2019. Manufacturers Volvo Group, a subsidiary of Sweden's AB Volvo (OTC: VLVLY) which builds Volvo and Mack models, and Navistar International Corp. (NYSE: NAV), which makes International trucks, announced production halts earlier.
The coronavirus worsens an already tough environment for new trucks. Volvo, Navistar and Daimler all announced significant job cuts earlier to address declining orders after two consecutive strong years of production and sales.
The full impact of the truck makers' actions were not included in IHS Markit's flash U.S. Purchasing Managers (PMI) or Manufacturing Output indexes for March 12-23, released Tuesday. Both indices hit a 127-month low dating to August 2009.
"Jobs are already being slashed at a pace not witnessed since the global financial crisis in 2009 as firms either close or reduce capacity amid widespread cost-cutting," said Chris Williamson, IHS Markit chief business economist.
Daimler Trucks North America is limiting production through April 6 at its Mount Holly and Cleveland truck plants in North Carolina; Gaffney Truck Plant in South Carolina; and Portland Truck Plant in Oregon. Operations will be limited at Daimler's Saltillo and Santiago truck plants in Mexico until April 14.
"DTNA is beginning to experience supply disruptions due to COVID-19 that will soon impact our production operations," the Daimler AG (OTC: DMLRY) subsidiary said in a statement.
"There will be limited operations at each plant location during this period as we will continue to provide full support of our Aftermarket operations to ensure our Parts Distribution Centers continue to run smoothly and fulfill their crucial role helping to keep critical infrastructure running."
Bellevue, Washington-based PACCAR said it would suspend truck and engine production at its factories worldwide from Tuesday until April 6. It will regularly review future actions. Aftermarket support will continue. PACCAR had about 27,000 employees globally as of December 2019. It did not say how many are affected by the production halt.
Like other publicly traded manufacturers, PACCAR's financial results for the first quarter and the remainder of 2020 will be impacted by lower production schedules due to changes in customer demand and by government regulations or mandates. The company will update its 2020 outlook and first-quarter results during is earnings call April 21.
PACCAR said it is in a strong financial position with manufacturing cash and marketable securities of $4.28 billion at the end of February. The company also has access to existing lines of credit of $3 billion.
"PACCAR's excellent balance sheet, experienced leadership team and outstanding employees will contribute to the company successfully managing through this difficult period," CEO Preston Feight said in a statement.
Among truck makers, PACCAR had a larger backlog of orders waiting to be built at the end of the fourth quarter than its roughly 30% market share. Cancellations could also affect other manufacturers, where orders were trending below replacement level before the coronavirus outbreak.
A shortage of components because of the coronavirus-extended Chinese New Year shutdown, already heavy inventories, and state-by-state shelter-in-place rules all impact how big a hit manufacturing ultimately takes, said Kenny Vieth, president and senior analyst at ACT Research.
ACT now projects 162,000 Class 8 trucks will be produced this year, not counting any production suspensions. The industry built 345,000 units in 2019.
"The issue of duration [of suspensions] is an open question at this point," Vieth told FreightWaves. "If these shutdowns are just two weeks, the lost units could be made up over the remaining months of the year. But if we are looking at multiple weeks or months, we don't know where to close the parentheses on the other side of the equation."
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