Truck Model Roundup
A strong economy drives trucks sales, even as prices escalate.
Tom Berg
Senior Equipment Editor
These are the good old days – again. The late-1990s boom in heavy trucks is repeating itself, with sales brisk for the past two years and original equipment manufacturers expecting the pace to continue for at least another year.
But the smiles among OEM executives are not always mirrored in their customers’ faces, with rising truck prices eating up some of the revenue brought in by long-needed hikes in freight rates.
Orders dropped off in the first quarter but sales have since increased, cleaning out dealer inventories – a positive development, OEMs think. Most builders have enough orders to keep production going through year’s end, and while the heretofore robust U.S. economy appears to be slowing, it remains generally strong and should support new orders for trucks as the year progresses.
Forecasts for U.S. Class 8 sales for this year vary widely, from 203,000 to 249,000. The low figure will still be 20% higher than last year, and ’06 should be strong, too.
Come 2007, builders expect another sales drop off – like that following the October ’02 introduction of cleaner burning, but costlier diesels.
In January ’07, another round of strict emissions regulations takes effect. Engines will change again and prices are expected to increase once more. OEMs don’t think the sales drop off then will be as steep as in ’02; some put it as low as 10% for builders who make a lot of vocational trucks, and as high as 30% for those whose sales include more over-the-road tractors.
Just like the time leading up to October ’02, there is some “pre-buying” going on as fleets – wary of new engine technology and wanting to avoid accompanying steeper prices – stock up on present models.
Several fleets have announced that they will buy more trucks than usual to beat the January ’07 deadline, and more pre-buying might take place, beginning late this year. But OEMs think most customers seem to be only replacing high-mileage equipment at the present time. Few over-the-road fleets are expanding, or at least not by much, because they can’t get drivers to operate additional trucks. And some executives realize that fielding too many trucks will only undermine their freight rates.
OEMs have expanded production to meet demand, but are not willing to push it further to accommodate any massive pre-buy. Doing so would only be followed by painful cutbacks and layoffs, they say.
Besides, component shortages restrain current production and they couldn’t build more trucks if they wanted to. Tires are in short supply with at least one maker putting OEMs on allocation, and some axles cannot be built fast enough because parts for them are on back order.
Manufacturing in boom times makes a complex business even more complicated and costly. For example, one OEM reports it has had to buy tires at near-retail prices from local distributors to maintain production and meet delivery commitments.
STIFFER PRICES
How much will truck prices rise in ’07? Nobody knows or is willing to say because engineering work on the new diesels and their installation in trucks is not complete. Rumors put the hike for Class 8 trucks at $5,000 to $10,000 each.
All 2007 diesels will get exhaust particulate traps, which add cost and complexity and are difficult to “package” on some chassis.
And engines will run even hotter than current models. That means cooling systems need to be strong, though most of those beefed up for October ’02 should be able to handle the ’07s.
Test engines are now on the road, piling up miles and verifying the soundness of new designs, or any weaknesses in them, say truck and engine makers. Fleets should have their own ’07-model engines to test by late this year or early next year. There is more time for this now than there was prior to October ‘02, when testing time was shortened by the pull-ahead from the original January ’04 deadline. More test time should sooth fears about the new engines among fleet executives, but many may pre-buy anyway.
Pre-buying or running older trucks longer to avoid costly new models makes business sense. But it thwarts Clean Air goals because older, dirtier trucks stay in service longer, argue the American Trucking Assns. and the Truck Manufacturers Assn. They say truckers need monetary help to buy the cleaner but costlier trucks, and are lobbying Congress to provide tax-credit incentives to offset the anticipated ’07 price increases. Several lawmakers are said to be interested in the idea, but others think its chances are poor because of budget constraints.
Meanwhile, per-truck prices rose $4,300 to $9,000 between April ’04 and April ’05, according to one OEM’s study. Those numbers are net-to-dealers, based on published prices sometimes offset by sales incentives. There has been no price gouging, OEMs insist; the hikes occurred because of price inflation in materials. Some builders impose surcharges – now typically $1,500 to $1,900 per truck – in their prices; others include the higher costs of materials in list prices.
Affected materials include petroleum, which goes into plastic and rubber; aluminum, for some cabs, sleeper compartments, brackets, tanks and wheels; and steel, for many cabs, almost all frames, and all engines and driveline components.
Steel content is highest in vocational trucks, like dumpers, mixers and trash haulers. Prices for materials appear to be leveling off, and perhaps the same thing could happen to truck prices – at least until ’07.
BUYING TRENDS
Owner-operators are still buying new trucks, though not in numbers of previous good times. High fuel costs plague them because they don’t have the clout of fleets, which generally can get fuel surcharges from shippers. But high fuel prices have not caused o-o’s or fleets to change their truck-buying habits, OEMs say. Those who want traditionally styled “large cars” still choose them, and more efficiency oriented customers continue to buy aerodynamic models.
The trend to automated mechanical transmissions in heavy trucks continues to inch up, as buyers discover that ease of operation helps in driver hiring. The fact that fuel economy and safety can be enhanced doesn’t hurt, either. Makers of AMTs would like to see a stronger migration to them, but they also sell manual transmissions and enjoy the current brisk business in those.
Several OEMs now offer factory-installed auxiliary power units, and there is more interest in them since many local and state authorities have gotten serious about imposing and enforcing bans on engine idling.
But APUs remain a pricey way to handle the bans and allow drivers to rest in comfort, so most sales are still to owner-operators who buy in the aftermarket.
The glut of used sleeper-cab trucks that developed several years ago is long gone, and good used trucks are rare. A “low-mileage” truck is now something with a half-million miles – up by 100,000 or so from a few years ago, one OEM says.
Used tractors with short sleepers are now strong sellers because they can do the job of daycab tractors, which have always been in short supply. Several OEMs have set up programs to inspect and certify used trucks and make them safer buys for customers.
Vertical integration – the practice of equipping trucks with in-house components and limiting other choices in specifications – is spreading among Class 8 builders, and some customers are concerned. This is a story unto itself, and we have one beginning on page 96 of this issue.
Truck Model Roundup continued...
