Engine maker Cummins Inc. tracks with OEM projections for solid North American demand for new trucks for at least the first half of 2023. If the Chinese market recovers, look for a possible profit spike.
Freight rates, especially spot rates that account for roughly 15% of the market that quote loads by the day or hour, have dropped significantly. Contract rates are not far behind. But pent-up demand for new equipment remains a positive tailwind, manufacturers agree.
“We continue to see healthy freight activity and strong backlogs, which gives us confidence that the market is going to remain strong, certainly through the first half of the year,” Cummins CEO and President Jennifer Rumsey said on the company’s fourth-quarter earnings call with analysts on Monday.
Cummins’ sales in North America were up 25% in Q4 driven by continued strong demand in truck markets.
Columbus, Indiana-based Cummins supplies engines to practically all OEMs, even as it makes its own proprietary powertrains. Like the OEMs themselves, Cummins has been undersupplying engines for the last two years. The COVID-19 pandemic and supply chain disruptions slowed new truck production.
Aftermarket demand tracks lower new truck production
“We’re seeing that reflected in very high aftermarket demand,” Rumsey said. “These new trucks provide efficiency benefits to the fleet. So, we continue to expect a strong North America truck market.”
Cummins projects North America heavy-duty truck production to fall between 260,000 and 280,000 units this year, 5% below to 2% above the industry’s heavy-duty truck production in North America. That’s a range of a 5% decline to a 2% improvement over 2022.
In medium-duty trucks, where Cummins is taking over all diesel engine production for market-leader Daimler Truck North America — and eventually Daimler Truck units around the world — it projects a flat to 10% increase from 125,000 to 140,000.
China demand is wild card for Cummins
The wild card for Cummins is the China market, which through the end of 2022 ran at its lowest level in a decade.
“We project a 15% to 25% improvement in heavy- and medium-duty truck demand and 10% to 20% improvement in demand in the light-duty truck market ,” Rumsey said.
But if the China market recovers faster than expected, look for a significant profit spike, CFO Mark Smith said on the earnings call.
Cummins projects a 15% to 25% improvement in heavy- and medium-duty truck demand and 10% to 20% improvement in the light-duty truck market.
“We’ve still got more share to gain [in China],” Smith said. “If I sit here today and say what could be the one thing that could change our guidance, most clearly it would be China. People are more enthusiastic, but the activity hasn’t yet materially picked up.”
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