Over the past two years, the general increase in new truck orders and production has been attributed to replacement demand, not expansion. Logically, though, if orders and production continue to increase, simple one-for-one replacement will eventually not account for order and production levels. 

Last week, the industry finally received confirmation by an OEM that expansion is indeed underway. As reported in the July 28th edition of Transport Topics, Volvo AB CEO Olaf Persson stated, “… for the first time in a long time, we now start to see that it’s not only replacement, it’s actually moving into expansions by our customers.” As far as I know, this is the first concrete acknowledgement by an OEM that fleets are expanding.

It is very likely that the economic recovery has reached critical mass as it pertains to freight growth. Fleets operating at 100% capacity can’t take on additional business, and they appear to be confident enough in a sustained recovery to invest in more equipment.

Over the long term, additional trucks delivered today will ensure that supply of late-model iron will increase back towards pre-recession levels. As a result, pricing will likely adjust downward. However, the notably higher price of new equipment today will keep demand for late-model trucks strong enough to limit the rate of depreciation. In other words, demand for late-model iron should be stronger in upcoming years than it had been prior to the recession. The market will be willing to “absorb” more supply. Dealers should look forward to moving higher volumes of trucks that are still high priced in historical terms.