Earlier this week at a presentation for analysts in Manhattan, Chip McClure, chairman, CEO & president of ArvinMeritor Inc. reaffirmed the manufacturer’s guidance to investors, stating that it will have earnings of $1.40 to $1.60 a share and positive cash flow and will “take tough actions to offset known risks.”
Reviewing the global manufacturer’s performance, McClure pointed out that “the North American economy is really a challenge for everybody…The original expectation was the Class 8 market was actually going to be coming back this quarter. And in spite of the fact that we have seen two good months in October and November as far as orders, when you look at it, we do still see that being kind of pushed out to probably the second half of '08.”
McClure stated that ArvinMeritor is “planning for continued margin expansion” in its light-vehicle business. He pointed out that a key growth initiative in its commercial-vehicle business is the expansion of its remanufacturing operations via its acquisition of Canadian component remanufacturer Mascot Truck Parts Ltd., announced this week.
Carsten Reinhardt, president of ArvinMeritor’s Commercial Vehicle Systems, said that increasing the company’s aftermarket focus significantly on remanufacturing brought “some very, very good results in 2007. We have grown in Europe by 18%. Year-over-year, we have grown in South America by 25%, in Asia-Pacific by 12%, and with a lot of initiatives that we were able to do, we have been able to get through the North American market despite the downturn and the softness… not a double-digit growth but a very good result also here in North America.”
Turning to the North American truck market overall, Reinhardt expanded on McClure’s comments on truck orders, stating that the order intake in October and November was very positive. “We have seen 20,100 orders in October, 20,900 orders in November… the last time we had over 20,000 orders was in June of 2006, so a significant event, even more so that it is two months in a row…that's about a 240,000 annualized rate. We believe that that definitely is a very, very positive sign.
“I think it means that the market isn't quite as far down as people have said it to be,” continued Reinhardt. “While we see some weakness in freight, we also have some indications that at least in some areas shipments are up a little bit.” Reinhardt also said he does not believe fleets are adding capacity at this point. “When you talk to them, nobody is out there eager to grow their fleets. But I think what we are seeing now is the beginning of a replacement cycle that is going to kick in.”
As for ArvinMeritor’s estimate for 2008 truck sales, Reinhardt said the company is forecasting that number to be “around 220,000 for the year…this is our fiscal year and a little bit higher than that for the calendar year. Notwithstanding any major catastrophes to occur, I would say we have seen the bottom in the order intake and we are on our way up.” As for 2009, Reinhardt said it is being anticipated as a very strong year, “fueled and driven by replacement [demand] and by the recognition [that] the trucks aren't going to get any cheaper in 2010.”
Reinhardt said a key factor to bear in mind about 2010 EPA-compliant engines is that engine makers have embarked on two paths— some will use selective catalyst reduction (SCR) technology requiring urea, some will not.
“The biggest impact [in terms of 2010] will be the technology question,” he told FleetOwner. “Announcements by engine makers, which started with Cummins, that they will not use SCR may make it more difficult to implement that technology—to have the urea infrastructure in place for those who would need it.” According to Reinhardt, SCR will be “less of a technology landslide” than many had originally thought. “There is good reason to people will head into 2010 with less anxiety,” he added. “So we expect less of a spike in buying and not the ‘cliff event’ we saw” ahead of the 2007 engines.
Reinhardt also told FleetOwner that ArvinMeritor is committed to “providing a deeper level of support for its customers” and is fully cognizant of the importance to fleet owners of product reliability on both the truck and trailer side of the business. “We fully understand what fleet expectations are [regarding reliability] and we are putting in place processes and systems going forward that will pay greater attention [to these concerns],” he stated.