CLASS 8 ROUNDUP: Happy Days Are Here Again?
An upturn in sales looks to be under way.
Tom BergEquipment
Editor
Have you been out pricing new trucks? Have you ordered some? If so, join what may be a growing crowd. Builders have been reporting increased interest in '04-model trucks through most of this year's first half, and more actual quoting as summer arrived. And, just as many forecasters predicted, sales have begun to rise from the slump that followed last fall's frenetic "pre-buy." Next year should end up with Class 8 sales in the 180,000 range, which is quite healthy.
It all seems driven by the factors everybody's been citing as they squinted into the future aging trucks that must be replaced, even if new vehicles are more expensive to buy and operate; general satisfaction among users of post-October engines, which are running well but using a bit more fuel than before. Then there's strong consumer spending in mid-summer, indicating the general economy's very slow recovery is accelerating, along with freight shipments.
One sour note is state and local government business, which is slumping as states and municipalities grapple with budget deficits that have reached the crisis stage in some cases. This is cutting purchases of many types of vocational trucks. If state- and locally-funded highway projects are also cut back, purchases of dumpers, mixers and other construction chassis may also be negatively impacted.
If you've been out of the market for more than a year, you'll find some equipment changes in long-established nameplates. The number of truck makes is about the same, but one familiar model is gone, another is departing and an old nameplate has been revived. Consolidation among truck builders and suppliers has reduced choices in engines, transmissions and other components as product planners pare options lists in the name of efficiency or competitiveness.
There might be even less if a proposed merger between two major axle and brake builders goes through. ArvinMeritor is attempting a hostile takeover of Dana Corp., citing big production savings and operational "synergies" that would hold down component costs. Dana says it's not for sale, and notes that the government would probably not approve the deal due to antitrust concerns.
Strategic Alliances
The push by truck builders for alliances with component suppliers continued over the past year, resulting in fewer options available to buyers who prefer to spec their trucks. For instance, a few months ago, International Truck & Engine Corp. announced it would buy its fifth wheels only from Fontaine and cut out three other suppliers. Buyers can still get other fifth wheels, but dealers must install them.
International and its competitors made similar decisions on axles, transmissions and countless other parts over the years. These so-called strategic alliances help hold down costs. In return for steady, long-term business, a supplier agrees to relatively low prices. The truck builder can pass some of the savings on to buyers, or at least moderate any price increases.
In the last few years, alliances have involved engine manufacturers. The engine is the most expensive single component in a truck, and the one that develops real emotions in some buyers. Customers complained bitterly when favorite engines were dropped from favorite chassis.
Most notable was the dropping of Detroit Diesel Corp.'s Series 60 by International, Volvo, Kenworth and Peterbilt. The S60's fuel efficiency in the late 1980s and early '90s saved many truckers from bankruptcy, but Detroit is now part of DaimlerChrysler and Freightliner, a competitor.
Series 60 Still Strong
The Series 60 is getting long in the tooth, but it's still good enough to have survived a makeover to meet tighter exhaust emissions limits decreed for last Oct. 1. Reports from fleets trying the S60 indicate fuel economy degradation is now under 3%, compared to the 3 to 5% that engineers had expected, Detroit says.
Next January, improvements to combustion chambers and pistons should return fuel economy almost to pre-October '02 levels. Steadily increasing business has caused Detroit to restore its second shift. It reports shipping 17,000 engines equipped with exhaust-gas recirculation since the changeover last October, and by mid-August had a backlog of 30,000. The S60 is exclusive to Freightliner, Sterling and Western Star, and it's the single most popular engine in Freightliners.
Detroit Diesel also handles marketing of Mercedes-Benz' MBE4000 and MBE900 engines. It says the non-EGR'd 4000 has caught on with buyers drawn to its lower price and strong performance. In January, it will need EGR to meet the same limits now adhered to by domestic diesels. Detroit says the MBE4000 and 900 will get a simple type of EGR that uses reed valves instead of a variable geometry turbocharger, like Volvo's V-Pulse.The upcharge for an EGR'd MBE4000 will be significantly less than what competitors have been charging, the company says.
Other engine and truck builders are also reporting encouraging news on sales and performance. By most accounts, the EPA-compliant engines are performing well, and drivers love their quicker response. But their higher price and fuel consumption have soured some would-be buyers.
Sales were slow during this year's first half as customers put pre-buy units into service and continued to shy away from the new engines. Builders have been expecting an upswing as this year wears on and truckers realize they have to buy something — especially since the supply of low-mileage used trucks has dwindled.
Used Truck Situation
However, buying is tough because used trucks now tend to have high miles and low trade-in values. So it takes cash to get into something new.
Meanwhile, financing can be tough to get and insurance premiums remain high. These have not been the best of times, but things are apparently changing for the better.
There are plenty of high-mileage used trucks on lots, and will be for a while because so many new trucks were sold during the 1998-2000 boom. These are coming in on trade, but not all are being traded one-for-one on new trucks. High mileage today means 700,000 to 750,000 miles, where a big-bore engine still has 25% or so of its life left. Depending on make, other parts like front-end bushings and upholstery may be falling apart, so such a truck usually takes some fixing up.
Still in demand are trucks with pre-October '02 engines, and they'll stay valuable until the new engines gain wider-spread acceptance in the marketplace. If you have such trucks, you'd be wise to hold onto them. Or maybe you should trade now while they're worth something. Because by January '07, when the next round of emissions limits will force more engine changes, today's engines will look golden and today's trucks will be in demand.
Paring Power
Some truck builders used the changeover to October '02 engines to pare their power options. Freightliner LLC, for example, dropped most Cummins engines, including the ISM and ISX, and made Mercedes-Benz its standard heavy duty diesel in most Freightliners. But as we noted, Detroit's S60 is the best-selling engine in Freightliners, and various Caterpillar models are optional and very popular in Sterlings and Western Stars.
By early this year, Caterpillar's combined medium- and heavy duty market share had zoomed to about 40%, partly because it's the only signee of the Consent Decree that avoided EGR. It's paying stiff penalties to the EPA because its Clean Power "bridge" engines are not quite clean enough to meet the October limits. Fully compliant ACERT models are starting to roll out, but they are complex in their own way and cost many millions to develop. Cat needs to recoup those costs, and also notes that ACERT engines will be as good on fuel as pre-October models. So Cat believes customers will be willing to pay hefty premiums for its ACERT models, as they have for Clean Power engines. Other engine-related developments at other truck builders:
• International now appears to be emphasizing Cummins engines in its 9000i and other heavy duty models, but Caterpillar remains important.
• Paccar struck a supplier agreement with Cummins and its engines are standard, but most buyers of Kenworths and Peterbilts seem to prefer Cats.
• Volvo dropped Detroit several years ago, and last year eliminated the Cummins ISC and ISL, which were lightweight options in two vocational truck series. One is the VHD, which now comes only with Volvo's own VED12. That engine is standard in the VN, and Cummins' ISX is optional.
Earlier this summer, Volvo showed off a new 16-liter engine for Europe and other markets. It now says the new D16C will eventually be brought to North America, but won't say when or for what models. Top rating for the D16C in Europe is 610 hp, so this could be an exciting addition to the Volvo, and perhaps Mack, product lines. But what then would happen to the Cummins ISX?
• Mack — Volvo's sister company — has made the ISX the only engine available in its long-nose CL, but only a few hundred are sold each year. Mack still offers the ISL in its Granite vocational truck, but more than 95% are sold with Mack's own 12-liter diesel.
By 2007, Mack and Volvo will share a new family of modern diesels, though they'll be tailored for each brand. Thus the "exclusive" vendor agreements that Mack and Volvo signed with Cummins not long ago appear to be declining in value.
Bye Bye To Highway FLD
The October '02 changeover to the new engines was Freightliner's cue to drop its venerable FLD highway models. It didn't engineer in the new diesels — a non-move that made sense, as the FLD120 and FLD112 were fading in popularity due to the more modern Century models.
However, severe-duty versions of the FLD continue in production, partly because Freightliner is still building thousands of militarized FLD120SD trucks and tractors for the U.S. Army. The Army's FLDs are exempt from the latest emissions limits, so their Detroit Series 60s don't have exhaust-gas recirculation.
Mack, on the other hand, engineered its EGR'd diesels into its long-running RD trash and construction series, but just announced it will drop the RD. The Granite, built at first with pre-EGR diesels, has become so popular with customers that RD orders are fading fast.
The RD, one of the last models to use the cab from the famous R model, will be gone by year-end. But the RB, with its setback front axle, will continue until a Granite-derived replacement can be engineered. So will the DM, with its cab offset to the left for better visibility, as long as orders are sufficient.
Drive A Bargain
Higher prices are hard for customers to stomach. Most builders list the more costly post-October diesels as a surcharge on the price sheet, and say buyers are reluctantly paying. But there are reports that some of the surcharges are not holding up in the marketplace. If you're in the market for one, two or a whole fleet of new trucks, remember that everything is negotiable. And a few builders have incentives that can soothe some of the sting.
Class 8 Roundup continued...
