2 Winners and 2 Losers in the Truck Engine Industry

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Ward’s Automotive released its Class 8 engine market share data (of factory shipments) for the month of October. Engine share has the largest incremental impact on Navistar (NYSE: NAV), Paccar (NASDAQ: PCAR), and Cummins (NYSE: CMI).

According to the data, which represents factory shipments and not retail sales, Navistar gained ~360 bps of share M-o-M (from 12.8% in September to 16.4% in October), with its own engine; the company closed out its FY’12 in October. Meanwhile, Paccar’s share remained flat (5.8% in September and 5.8% in October), with its own engine. Cummins gained ~130 bps of share, from 37.8% in September to 39.1% in October. Overall, Paccar’s market share remains bumpy as the company rolls out its own engines, while Cummins’s YTD share is slightly above the guidance levels. Navistar’s new engine strategy may help the company regain its lost retail market share upon launch in 2013, in both its MaxxForce and Cummins-sourced offerings, but near-term share visibility is low.

The Key Takeaways

Navistar gained engine share in October to 16.4%; 24% of its trucks used Cummins engines. On a month-over-month basis, Navistar's share of factory shipments, with its own engine, increased ~360 bps from 12.8% in September to 16.4% in October. The increase was not surprising, as the company closed out its FY’12 in October. Navistar’s engine share has been challenged in recent months due to the ongoing compliance issues on its 13-L engine; however, the retail share may pick back up again in 2013 as the company launches a product using the CMI 15-L engine as well as a new 13-L using the SCR technology. However, in the near-term, the retail market share visibility is low and will likely remain so until the new introductions take place.

Paccar’s market share was flat in October. Specifically, it was 5.8% in October, in line with September. The company’s share of factory shipments grew from a 2.3% share in 2010 to 6.1% in 2011, and is 5.1% in 2012 year-to-date. The company is building its own 12.9-L engine and plans to build its own 9.2-L engine. Paccar still relies on Cummins for its 15-L engine; its overall YTD Class 8 truck retail share is 30.4% (vs. 29.0% in 2011).

Cummins’s share increased in October; YTD share remains above the guidance of 40%. Its share increased to 39.1% in October, from 37.8% in September; Cummins's 40.8% share (till date) remains ahead of 2011 (39.1% for the full-year), and ahead of full-year guidance (40%). At year-end 2009, the company had a peak share of 46.9%; however, its share has declined after losing its old partnership with Navistar. Cummins stands to gain share when its 15-L engine re-launches on Navistar trucks (scheduled for early 2013). The first Pro-Star trucks featuring Cummins’s engine began rolling off production lines in November, a modest positive for the near-term share of shipments.

Meanwhile Detroit Diesel (Freightliner) lost share in October. On a month-over-month basis, Detroit’s engine share declined to 21.5% in October, from 25.8% in September. Overall, however, the company has regained share in recent months after experiencing some production issues. Detroit’s FY’11 share was 20.6%, down from FY’10 share of 23.6%, and YTD share is 21.4%. Freightliner’s Class 8 retail truck share is 33.4% YTD.

Volvo gained ~120bps of share, from 7.0% in September to 8.2% in October, while sister company Mack lost 40bps of share, from 7.7% in September to 7.3% in October. YTD, Volvo’s engine share is 7.1%, while Mack's is 9.3%. Volvo/Mack’s overall share of retail Class 8 truck sales is 17.2% YTD.

 

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My take

Cummins is enjoying its place at the top and is expected to stay there for quite some time. Navistar, the other winner, has had a tough time dealing with its non-EPA compliant 13-L engine. The same engine issue forced Navistar to lose a big chunk of its market share to Paccar and Detroit Diesel. However, Navistar is expected to regain that share, once its trucks fitted with Cummin's 15-L engines, hit the roads in the U.S. On the other hand, Paccar will face some challenges in introducing the trucks fitted with its engine in the U.S. truck market.



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