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Impressive topline US market performance in second quarter masks slowing commercial momentum

03 August 2021 Andrej Divis

Medium and heavy commercial-vehicle new registrations in the United States posted massive year-over-year (y/y) gains at the close of the second quarter of 2021. The truck, motor home and bus data for May 2021 reached a gain of 66% y/y, and the data for April 2021 came in with a gain of a whopping 91% compared to the same month of the prior year, in hindsight the trough of the crisis. But these impressive results obscured signs of slowdown, or a pause in growth, evident in the monthly registrations trend since the start of the year. After climbing steadily through March 2021 and nearly returning to the lofty peaks of early 2019 in that month, new registrations turned visibly down in April and May 2021. Beneath the surface, the details in the results underlined the strains on the industry, including production constraints due to post-COVID supply chain problems.

The numbers themselves showed the deceleration clearly. After 49,900 Class 4-8 vehicles in March 2021 (just shy of the magic 50,000-level achieved five times in 2019), new registrations dipped to 46,000 in April and fell further to below 42,900 in May. Although March is regularly stronger than April and May, the scale of the slide in the year-to-date 2021 was nearly three times as great as what one would expect for the period on seasonality alone, and all vehicle types together under-ran IHS-Markit's published registrations forecast for the month by 2%. Although all segments of the Class 4-8 market contributed to the slide, including each individual gross vehicle weight (GVW) class and each of the major vehicle types, some contributions to the slide were more significant than others. The picture that emerges is one in which many brands continue to operate under conditions that are far from normal, putting the brakes on the pace of recovery.

Amid the semiconductor shortage and ongoing supply issues in the industry, medium-duty leader Ford has prioritized other vehicle types over the production of the long-running van cutaway and strip chassis. Output of these types was stopped, temporarily, in May. Availability seems to have impacted the registrations statistics. Cutaways alone drove about a quarter of the overall market slide in the March-May period, far in excess of cutaways' share in Class 4-8 demand.

A larger story may be in Class 8, which enjoys robust backlogs of unbuilt orders and, until very recently, monthly order intake comparable to the 2018-19 boom. Despite the favorable circumstances, buoyed also by healthy freight conditions and good affordability, registrations of new Class 8 vehicles in the last two months declined the most of any individual weight class within the Class 4-8 group. Overall inventories pushed lower in the year to date, even as North American production flirted, briefly, in March 2021, with a return to a pace similar to 2019's, underlining producers' inability to keep up.

One of the notable 2021 new product launches, that of Hino's XL-7/8, remains stymied by broader issues, including powertrain certification. Hino has stopped output of all products at its Canadian and US plants pending a successful certification, currently foreseen for the third quarter.

Heavy-truck brand Volvo enjoyed a notable registrations spike in March, the highest single-month total in more than two years, but it experienced a steep drop in registrations volume thereafter. Compared to the 14% two-month decline in Class 4-8 overall from March to May, Volvo slid more than 30% in the period. In any given month, multiple factors influence a brand's performance. In this case, too, product availability appears to have had a role. Beginning in April, amid contract negotiations, Volvo North America faced strikes at the New River Valley plant in Virginia, and April's production total was the lowest in six months. Faced with strong demand and limited output, Volvo's inventory is estimated by IHS Markit to have declined by approximately 2,000 units in the year to date, a reduction of almost a month's worth of sales.

June 2021 registrations statistics will become available later this month, along with first-half vehicles-in-operation (VIO) statistics. These will yield deeper insights on who bought vehicles, who did not, and who drove the recent slowing pace in the market.

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