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Heavy-duty aftermarket continues to grow as economy slows

Canadian retail sales of Class 8 trucks and trailers will both be up about 9% this year, at 31,700 and 43,900 units respectively, according to an analysis from MacKay & Company, presented at Heavy Duty Aftermarket Dialogue Jan. 16.

Classes 6/7 trucks will pull back 9%, meanwhile, to 7,400 units. That’s off the 10-year average of 8,500 while Class 8 truck and trailer sales will each slightly outperform the 10-year average. That growth, according to Dave Kalvelage, client consultant and analyst with MacKay & Company, will lag that seen in the U.S.

Dave Kalvelage
Dave Kalvelage of MacKay & Company gives an update on the Canadian aftermarket. (Photo: James Menzies)

“We expect growth in Canada, just not to the same degree as in the U.S.,” he said.

Canada had a total Class 8 operating population of 369,000 trucks in 2022 and that’s expected to climb to 380,000 by 2027. The trailer population is currently 571,000 units, expected to climb to 589,000 in 2027.

The value of Canada’s heavy-duty aftermarket – including Classes 6-8 trucks, trailers and container chassis – will come in at about US$5.58 billion in 2022, up 16% from 2021 but mostly due to price increases. It was fairly flat when price increases are removed from the equation, Kalvelage said.

He also shared results of a survey asking fleets for their top concerns heading into 2023. They were: price increases (mainly fuel); labor issues; and general economic conditions. Parts distributors, on the other hand, were most concerned about: parts availability; labor issues; and price increases.

The good news, Kalvelage said, is price increases appear to be improving. Truck dealers saw price increases peak at about 12.8% in May 2022 and have dropped off slightly to about 11% according to the latest data. Parts distributors, meanwhile, saw price increases peak at about 16.3% in September and have pulled back to an increase of about 11.7%.

“Price increases over the last several months have started to trend down and we hope that will continue,” said Kalvelage.

The broader economy

While economic conditions remain a concern for fleets, Bob Dieli, economist with MacKay & Company noted the U.S. fed will continue raising rates until inflation pulls back much further than it has to date. Rate hikes will take time to work through the system and bring down inflation, he added, citing a famous line “the floggings will continue until morale improves,” to characterize interest rate hikes.

“Headwinds are considerable and diverse,” Dieli said of the current economic environment. MacKay & Company compiles a Trucking Economic Activity index that tracks those elements of GDP that spend time in a truck. “TEA never misses a recession,” he said.

TEA is declining, with four of five components (consumption, exports, imports, and government) flashing yellow and the fifth (investment) colored red.

“A recession is likely but the timing, depth and duration are all matters of speculation,” said Dieli. Could it be the soft landing so many hope for? “I don’t think that’s the way you bet the game,” he cautioned.

The global picture

Giovanni Schelfi, partner with Roland Berger, said the current geopolitical situation will driver uncertainty for decades to come. “Volatility is the new normal,” he said.

Roland Berger is predicting a decline in global growth this year. The U.S. and Europe may face only a mild recession, Schelfi said, assuming inflation can be brought under control. “The latest numbers provide some relief,” he added. “It’s still higher than the target but at least the trend is positive.”

Roland Berger maintains a “cautiously optimistic” outlook, Schelfi said.

For the commercial vehicle markets, Schelfi said demand will remain strong in North America, even as volatility remains for years to come.

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