It looks like the long-awaited diesel downturn will arrive in 1999 - Forecast '99

The good life couldn't last forever and we certainly have cheated traditional economics since at least 1995 (the year the economic downturn should have started). It just doesn't seem fair that 1999 diesel production would be determined by outside forces. After all, our economy is strong with inflation in check, low unemployment and the usual level of government involvement. Why did the Far East have to have an economic crisis and why can't we be international traders when all is well; and build a wall around us when overseas markets turn down?

We define North America as the United States and Canada which means North American diesel engine production is U.S., since there is no diesel engine production in Canada. The problem (or advantage depending on the viewpoint) is that the major North American diesel engine manufacturers are no longer North American. Most have plants, JV's, licensees or business arrangements in China, India, Brazil and Mexico (the IMF loan total for these alone would probably keep Greenspan awake nights!), as well as Western Europe and Japan. North American diesel production is not only affected by demand, but also by production costs which help determine worldwide plant location. Another warning of things to come is the U.S. trade deficit, which is at an all time high and growing. With domestic markets down, all the diesel engine importers are looking to export and the U.S. is the biggest target.

Traditionally, we use U.S. housing starts as our prime leading indicator for diesel engine production. North American diesel engine production for on-highway applications (trucks, buses and coaches) generally lags housing starts by six to nine months. Housing starts have been increasing since the last trough in 1991 with the exception of a breather in 1995, foretelling the 1996 decline in on-highway diesels.