Midrange & Medium Product Review
Sales slump continues, but new products keep things interesting.
ED THOMAS
In any boom-to-bust cycle, business people wring their hands over the situation and wonder when it's going to get better. So it is in 2002 with midrange trucks, whose sales are down 18% to 21% overall from last year. This is because the general economy — to which the truck market is tied directly — has not fully recovered since it began falling almost two years ago. For a variety of reasons, truck sales may not recover until sometime next year.
The slump of course has kept prices competitive even as a variety of new products hit the market. It's a good time to be buying, if you've got the money and confidence in your business prospects. That's the problem, say many in the business — truck users are holding back until things get better.
In products, customers have a lot to choose from, and many vehicles really are new and improved. We count 14 nameplates in all weight classes, plus two more in walk-in vans. Customers have an almost unprecedented number of choices, and new products are notable for their roomier cabs, comfortable interiors and ride qualities, and advanced technologies meant to ease maintenance and reduce operating expenses.
Going down the list of builders, we see that Freightliner has a new Business Class M2 range, which is now phasing in; General Motors' new GMC TopKick/Chevrolet Kodiak mediums are in production and the old C series is done, though it took overtime to finish the final orders; International continues adding variants to its popular "high performance" 4000 series; and Mack is importing its new Renault VI-built Freedom series of low-cab- forward models.
Late this year, Ford will get the first of its new F650 and F750 trucks built on International 4000 chassis, thanks to as-planned progress in their Blue Diamond joint venture. It will boost economies of scale for both companies while providing Ford buyers with advanced products that still look and feel like Fords. They'll use the same cabs and engines as now.
Meanwhile, Kenworth and Peterbilt enjoy sales that they say come from an appreciation for premium products. DC Vans moves ahead with its distribution plans for the innovative Sprinter van. Hino says it will begin assembling conventional cab-chassis in California in time for the 2004 model year. Freightliner Custom Chassis has completely redesigned one of its models to not only take an October EGR diesel, but also for easier body mounting.
EGR Diesels Coming
The controversy over October diesels, some of which will need exhaust gas recirculation, centers around heavy duty trucks far more than medium-duty. This is partly because many medium-duty trucks are exempt from the October requirement. And owners of midrange trucks use them as part of their businesses, which usually are something other than trucking. If their businesses need trucks, they buy them or they make do with what they have for a while longer, and that's where the sales uncertainty is.
Any pre-buying of mediums by fleets who want to avoid EGR diesels is apparently far less than with heavies. Leasing fleets, which are rather sophisticated in their truck management, have been counseling their customers to take early delivery of some trucks or to keep their current trucks longer. But their customers have business cycles and will want new trucks, no matter what their engines look like. This will probably happen sooner rather than later.
Truck builders not subject to the Environmental Protection Agency's consent decree include those in Europe and Japan. They will not have EGR until January 2004. One exception is Renault VI, parent of Mack, which was caught up in the decree; Renault makes Mack's Freedom and it must have EGR.
Who'll have what engines come October? Among manufacturers of medium-duty trucks...
• General Motors-Isuzu will produce its Chevrolet and GMC conventionals with its own non-EGR Duramax diesels (the domestically built 6600 V8 and the Isuzu-made 7800 I6) and Caterpillar's midrange 3126E (with exhaust aftertreatment). Isuzu continues its LCFs with its own non-EGR diesels, plus one model with a GM gasoline engine. Some Isuzu-made trucks continue with Chevy and GMC badges.
• Ford will continue with International, Cat and Cummins midrange diesels in various series, though the Blue Diamond joint venture with International may result in more International engines. Among them is a new EGR'd V8.
• Freightliner LLC, which includes Freightliner and Sterling mediums, will offer non-EGR Caterpillar (with aftertreatment) and non-EGR Mercedes-Benz diesels, and EGR Cummins diesels.
• International Truck and Engine will offer only its own medium-duty diesels. International's new 6-liter V8 has EGR but its I6s will not have EGR until '04.
• Mack Trucks — The Freedom LCF from France has a Renault diesel with EGR that works in only one cylinder.
• Paccar, which owns Kenworth and Peterbilt, will offer non-EGR Cat and EGR Cummins diesels.
Economy Still Slumped
While construction and certain other segments are relatively strong, the economy continues to suffer from the slump following the late '90s boom and the 9/11 terrorism. Sales of commercial trucks are likewise down, and most builders feel a recovery will not come until next spring.
Dave Dunahay, marketing director for General Motors medium trucks, says GM's lighter-duty models are going OK, but sales of mediums are "constrained" because buyers are not certain what will happen in their businesses, and are keeping their current trucks longer. A soft market, excess capacity and hot competition have required sales incentives — retail allowances, low prices on fleet bids, and assistance to dealers in floor planning, he reports.
The plunging value of stocks from corporate accounting scandals deflates individuals' wealth and cuts their spending, just as stock wealth fueled much of the 1990s boom. This could cripple a recovery and with it, sales of medium trucks, which are tied directly to the general economy.
Buyer interest is down substantially at Hino dealers, says Gary Brown, national marketing manager at Hino Diesel Trucks (USA). However, Hino's sales are up from last year, and he hopes the general turnaround will be in the next fiscal year. Mitsubishi Fuso's marketing manager, Joe Devlin, is more bullish. He sees the fourth quarter "coming back strong, and we'll probably see it rolling East Coast to West Coast as the economy comes back."
Everyone agrees that there should be no drop off in midrange sales after Oct. 1, as in heavies, when EGR diesels are due. Indeed, some EGR diesels are already being produced for medium-duty trucks and customers haven't seemed to notice.
As pieces of hardware, trucks without EGR'd diesels should be more fuel efficient and easier to maintain, and those able to sell them will tout them as an advantage. Non-EGR diesels should also cost less to buy, but this may or may not be reflected in pricing.
EGR And Prices
There are a host of other fixed and variable costs in manufacturing that affect prices — development and engineering, marketing, buying supplies and components, transportation, utilities, maintaining buildings, and labor. Sometimes keeping the production lines going costs less than shutting them down, explains Dan Cutler, director of product development for General Motors Isuzu Commercial Truck. All of this factors into a truck model's price, and it's possible to lose money on the product but make money as a company.
As for the expensive EGR technology, a company can declare that "John Q Public will have to pay for it, but then there's the economy and competition," he continues. Neither may allow a price increase. GM and Isuzu diesel trucks will not need EGR in October, but will in January '04, "and the question is, do you try to eat some of that now or eat it later?
"We're out there competing for business, and if we don't have to raise our prices we won't. So maybe we can avoid a price increase this fall and then they have to compete with us. Then come '04, and we'll be at a disadvantage."
Mitsubishi Fuso's diesels will not have EGR, either. "It could give us a competitive advantage in some instances, probably in the Class 6 and 7 markets," says Joe Devlin. "It won't be a big advantage, but may negate some of the disparity that we have in pricing with the domestics. We're at a price disadvantage with Navistar, to name one. It could help to bring us up to par, depending on how much they have to raise their prices," Devlin said. "For now we're holding our prices for the coming year."
International Truck and Engine will raise its price per vehicle by $1,850 effective Oct. 1, according to David Hillman, director of product marketing. This will cover various hardware changes between now and '04, and follows a 1% increase in spring. The popularity of International products may support the higher price, but no one's banking on it.
Like most builders, International doesn't expect a sales falloff in midrange trucks in October. "Customers are buying medium-duty trucks because they use them in their business and they've got a business to run," Hillman reasons. "So they need trucks, and if prices go up, so what? And prices won't go up as much as with heavies. 'But if prices go up, do I spend more, buy less or shop around?'" he says, from the customer's viewpoint. Time will tell.
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