The top executive at Eaton Corp, a diversified manufacturer that builds transmissions and other components for commercial trucks, said on Monday that he believes that sluggish market won't begin to recover until late this year at the earliest.
In an interview, Alexander "Sandy" Cutler, the chairman and chief executive, said the downturn, caused by US clean-air rules that took effect on January 1, would end gradually as even stricter pollution regulations scheduled to take effect in 2010 get closer.
"We're in the trough right now," Cutler said. "But instead of being a sharp V, where you expect the bottom to be hit in one quarter followed by an immediate snapback, our view has been that the second and third quarter would continue at roughly this ... level. We'll begin to see a marginal improvement in shipments in the fourth quarter ... and then a real snapback in 2008."
The decline in North American sales stems from new environmental protection rules that took effect this year that require truck manufacturers to put more complex and expensive engines in their vehicles. Many trucking companies - worried about the reliability and running costs of engines designed to comply with the tough new rules - chose to update their fleets last year, ahead of the rules' implementation.
That rush to buy pulled many sales forward. As a result, industry production is down more than 51 percent this year. Earlier Monday, Eaton posted higher-than-expected quarterly earnings, helped by sales of power systems to non-residential builders and surprising strength in its truck parts division. The company also raised its forecast for full-year earnings, the second time it has done so this year, helping to push up its shares by as much as 6 percent.