North American Class 8 truck production in 2006 is expected to range from 355,000 to 365,000 units, but drop roughly 40% to 207,000 units in 2007, said Kenny Vieth, partner of A.C.T. Research Co., LLC during a Bear Stearns conference call held today.

“The market…demand has shift from timing associated with drivers and equipment to rising costs associated with [EPA] mandates,” Vieth said. “The silver lining is that there is some predictability. We at least know when the market is going to go now.”

Indeed, A.C.T. Research predicts Class 8 truck production after 2007 to ramp gradually back up to 2006-levels by 2009, in advance of new stricter Environmental Protection Agency (EPA) emissions requirements for 2010 models. Then in 2010 sales will most likely fall back to forecasted ’07-levels, since 2010 model trucks will likely be equipped with more expensive environmental technologies than prior-year models.

“And almost as soon as truckers say we don’t want the trucks in the first one or two quarters of 2007, we expect truckers to shift their focus from 2007 to what they don’t like in the engines for 2010,” Vieth said.

The EPA mandate will create a yo-yo effect on production rates, which ultimately will present a significant challenge to OEMs, Vieth explained. “I think the trick for OEMs…is how do you manage a 40% decline (in 2007) knowing that within 12 months you’re looking at a 40% increase in volumes. I’m not aware of what anybody is doing specifically to cut down production but still maintain staffing levels so when the second shoe falls [OEMs are] ready to compete and grow market share.”