Class 8 sales to weaken despite vocational demand

Even as North American net orders kicked off the start of the “order season” with a strong September, ACT Research’s North American Commercial Vehicle OUTLOOK said the U.S. Class 8 market faces continued overcapacity that is “leading to generationally weak for-hire tractor fundamentals and stimulus/industrial policy supporting vocational equipment demand,” portending more constrained Class 8 sales going forward.

Final North American Class 8 net orders for September came in at a solid 37,100 units, per ACT Research’s latest State of the Industry: NA Classes 5-8 report. However, Kenny Vieth, ACT’s president and senior analyst, noted, “Tractor orders were down 32% y/y at 17,000 units, as a weak for-hire market weighs down capital budgets.”

Vocational orders leapt by 20,000 units in September and were up 71% year over year. “With production capacity constrained in recent years, lingering pent-up demand and string end markets — still-plentiful stimulus money from CHIPS, IRA, IIJA projects, construction in Mexico and utility investments — provide strong tailwinds in vocational,” said Veith.

He went on to SS that Class 8 backlog rose to 116,034 units, a month-over-month increase of 10,600 units. But he pointed out that this is only the second time in 2024 that orders outpaced build, with the backlog-to-build ratio unchanged at 4.2 months on a nominal basis.

Market weakness ahead

While September’s top line flatters, the underlying numbers point to a “bifurcated market with softness in tractors and considerable strength in vocational,” according to the State of the Industry: NA Classes 5-8 report.

“On one side of the divide, vocational equipment demand continues to be supported by secular trends and stimulus programs. The clean energy transition and AI are driving utility infrastructure investment, while government programs, such as CHIPS and BIL, have boosted public infrastructure and reshoring projects,” said Vieth. “In the case of government incentives, the programs are still in the early stages of grant awards, so these programs still have long legs. All the above is long-term positive for construction-related vocational equipment.

“At the same time,” he continued, “the U.S. and Canadian tractor markets remain awash in capacity, allowing freight rates to rise only incrementally over the past year.”

This has resulted in the lowest for-hire carrier profitability levels since the global financial crisis. “For tractors, neither the current worst-in-15-years depression in for-hire carrier financial conditions nor the private fleet spending of the past couple years support strength into 2025 — especially early,” said Veith.

“Adding to near-term demand challenges, ACT projects dealer inventories to be fuller at the start of 2025,” he added, “so dealers are also seen as more constrained.”