Heavy truck sales in Canada should rebound quickly, report says
The Canadian heavy truck industry has been hit hard by the COVID-19 pandemic, a new report from Scotiabank says, but sales should shift back into positive growth territory in 2021.
The Canadian heavy truck industry has been hit hard by the COVID-19 pandemic, a new report from Scotiabank says – but unlike many other industries, the situation for the truck manufacturing and selling sector is not unprecedented.
“The order-book contracted sharply in April with sales down by 55% year-over-year (y/y) and sitting at -26% year-to-date,” Scotiabank said in an Aug. 26 report. “But unlike many other industries, the situation is arguably not without precedent. This highly cyclical business has suffered dramatic declines of similar magnitude in the past – most recently during the Global Financial Crisis with annual sales plunging by -40% y/y in 2009.”
A cyclical downturn was already underway in the industry prior to the pandemic, Scotiabank said. “Heavy truck sales in Canada and the U.S. surged in 2017 and early 2018 as output gaps closed against solid economic activity and highly supportive fiscal and monetary policy environments,” the report said. “Sales grew by 16% y/y and 26% y/y in 2017 and 2018, respectively. As financial conditions started tightening in the latter part of 2018 and trade tensions escalated, truck orders pulled back sharply in a trend decline as the industry faced an oversupply in capacity. Sales were already in negative territory when the pandemic materialized in early 2020.”
The downturn should be shorter-lived this time with massive policy support in Canada and abroad that has contributed to a stronger-than-expected rebound in activity, Scotiabank continued – and this economic recovery should support freight demand and hence heavy truck sales over the medium term. “This has supported a faster pick-up in trucking activity evidenced by an acceleration in heavy truck orders in May and June as higher-frequency data shows strengthening freight loads,” the report said. “With a typical year-long delay between order and delivery, heavy truck sales are impacted not only by traditional economic drivers but also by uncertainty around the outlook. There is considerable uncertainty ahead, but an economic recovery is underway and the outlook for heavy truck sales in Canada should continue to improve.”
Scotiabank estimates that sales will continue to strengthen over the course of the year – albeit at a more moderate pace with monthly volatility – to 42 k units (-20% y/y) and to shift back into positive growth territory in 2021.