Volvo truck deliveries: Here comes the hangover

by SR on October 25, 2012

Volvo truck deliveries to North American by month and year (units)

Not looking good for trucks

Conclusion: Volvo’s truck deliveries in September 2012 held only one mildly interesting point, which was the continued strength in Eastern Europe. Western Europe, North America and Asia were all worse than normal for the month of September. Moreover, a quick look at the supplementary information for Volvo’s just-released September quarter shows a further decline in orders, implying lower deliveries down the road. Sucks to be the world’s No.2 global truck supplier – but Daimler’s recent downward revision shows that being No.1 isn’t easy either. Avoid commercial vehicles, whether road or forklift trucks. Toyota and related parts suppliers such as Denso are doing far better.

North America plunging

“The party’s over” was our conclusion when we last commented on Volvo’s truck orders in late July after 2Q results. When we made that comment We were referring in particular to the massive truck-buying binge that has been seen in North America over the past 18-24 months. So we’ve had the party, now we’re getting the hangover. The chart at the top of this page shows Volvo’s truck shipments in NorAm for the past five years. The orange line is 2009 deliveries, well below the green line of 2008, but look at 2010, shown by the purple line. In July 2010 shipments take off like a scalded cat, so that by the end of the year they are already ahead of the second half of 2008. In 2011 (the blue line) deliveries dipped below 2008 levels for only two months and remained on an upward trend all year. And in 2012 (the red line) deliveries soared further still, until they collapsed in August and fell further in September.

How long before North American truck buyers come back to the market? Several quarters, I suspect. In the results call, management said “we do see a sideways movement in 2013” for North America but looking at the very difficult comparison with 2012, flat deliveries in 2013 looks optimistic to me. What might save Volvo and the other heavy truck suppliers is a sustained and significant pickup in the US housing market, but a pessimist might argue that the construction industry buyers have already finished their refleeting.

Volvo truck deliveries, cumulative year-to-date in North America (units)

The figures

To pull back to the bigger picture, Volvo’s total worldwide truck deliveries (i.e. not just ‘Volvo’ brand trucks) in September 2012 came to 17,840 units, which was an increase of 18.9% compared to August 2012 but a decrease of 20.1% compared to September 2011. The month-on-month increase of 18.9% is atypically poor: the median change for the month of September since 2001 is +58.5%. For the January to September period cumulative deliveries have reached 165,391 units, down 2.6% over the same period in 2011. By region, over that same January to September period, cumulative deliveries in South America are down 20.9%, Western Europe is down 17.2%, Asia is down 4.7%, Eastern Europe is UP 10.9% and the ‘Other’ regions are up 15.1%.

The problem Volvo has run into is that even after a very weak year in Western Europe, that region still accounts for 27.8% of Volvo’s total deliveries year-to-date. Asia accounts for 22.8% and North America for 22.6% of the total. Those three struggling regions make up 73.2% of the total, and the slumping South American market adds another 10.2%. The positive impact of Eastern Europe and ‘Other’ is far too dilute to have a significant effect on global deliveries. In September 2012, every market apart from ‘Other’ recorded lower-than-usual increases over the previous month i.e. August 2012. As an example, the chart below shows the percentage change in deliveries for the month of September in North America over the most recent 12 years. September deliveries in North America fell 10.7% month-on-month, the second worst performance during those dozen years.

Month-on-month change in Volvo truck deliveries in North America for month of September (%)

Eastern Europe, on the other hand, was a relative bright spot, as it has been for several months.

Volvo Eastern European truck deliveries, cumulative year-to-date

Orders suggest further falls ahead

As you can see I’m focusing a great deal on North America because (a) it is a large market for Volvo and for heavy trucks in general (b) because it has had a terrific couple of years that hints at over-buying and (c) because one can at least try to make a plausible case for steady demand whereas in Western Europe there seems little chance that demand will do anything other than free-fall for the next several quarters.

Unfortunately orders in North America are not doing very well. The chart below shows quarterly orders since late 2006 in North America. Q3 is usually a seasonally strong quarter, as shown by the highlighted red bars in the chart below. Since 2006, Q3 orders in North America have usually posted a substantial increase over the June quarter and have only posted sequential decline twice. Once was in 2011, coming off the record high figure of more than 15,000 units recorded in the June 2011 quarter – obviously not a bad performance when you consider the very high absolute level of orders. The other sequential decline was in Q3 2012, the quarter just ended. In other words, if you adjust September 2012 quarter orders for seasonality it looks like a pretty poor performance.

Volvo truck orders in North America by quarter (units)

On the conference call Volvo’s management made a big deal of the flat book-to-bill ratio (the ratio of orders to sales), which was flat at 0.90x for the worldwide truck business in the September 2012 quarter. Okay, it was flat, as the chart below shows. But that’s not necessarily a good thing.

Volvo quarterly book-to-bill ratio for trucks by region

Although the BB ratio did not decline, total worldwide truck orders fell from 52,946 units in the June quarter to 45,272 units in the September quarter (-14.5%), which cannot really be interpreted positively. The book-to-bill ratio stayed unchanged only because deliveries (sales) fell at the same rate as orders. Again, that’s not a positive development. The graphic below shows orders for each major region (I removed the ‘All regions’ total because it distorted the scale). It shows that truck orders fell sequentially in the September 2012 quarter in every region except South America, which was affected by the financial stimuli and incentives being offered by the Brazilian government. It’s not exactly a picture of health.

Volvo quarterly truck orders by region (thousand units)

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