Class 6 & 7 Roundup

MORE HORSES, HIGHER PRICES

Many models carry through with few changes from '07 except more standard horsepower and higher prices.

Tom Berg • Senior Equipment Editor

In late summer of 2007 there's much more news on the manufacturer side of the medium-duty truck business than about the trucks themselves. As with Class 8, builders of midrange products poured considerable money and effort into engineering EPA '07 diesels and stronger cooling systems into their vehicles. Those showed up in their 2007 or early '08 products, along with whatever other changes were deemed necessary.

Those midrange offerings mostly continue unchanged into 2008, with some exceptions. Industrywide, sales of Class 6 and 7 trucks are down about 20 percent over last year, pretty much as expected (registrations are down by about 16 percent). Builders cite two reasons: a slower economy, with less freight to move and deliver; and the pre-buy in which some buyers and dealers stocked up on less costly pre-EPA '07- powered trucks. One builder said the inventory of all Class 6 and 7 trucks at dealers was 40,000 to 45,000, which is 180 days' worth. That compares to the 110 days that builders usually shoot for, with almost as many midrange trucks in inventory as in Class 8.

However, the pre-buy was less a factor among midrange buyers than it was for Class 8 trucks, and many customers continue to acquire medium-duty trucks in spite of their higher prices. These include municipalities, which budget their acquisitions in advance, and retail businesses, which use trucks as transportation tools. Mostly staying away, builders say, are for-hire and leasing fleets.

A slight uptick in sales over 2006 is reported by importer Mitsubishi Fuso, whose executives say they aren't exactly sure why but they're happy about it. Now majority-owned by Daimler AG (formerly DaimlerChrysler), Fuso supplies Class 3 and 4 low-cabforwards to Sterling, which sells them as its model 360.

Hino, now a domestic builder with an import name, is seeing a slight downturn following a sharp sales increase after converting from imported LCFs to domestically assembled conventionals. Hino says it is planning to open a second plant in West Virginia this fall to supplement the Toyota-owned facility in California.

Several recent developments affect the midrange market, and three involve General Motors Corp.

• GM sells Allison Transmission. General Motors, following top executives' previously announced intentions to raise cash and concentrate on automobiles and light trucks, sold Allison to an investment group. Announced in June, the $5.6 billion deal should close soon. Allison, based in Indianapolis, claims an 80 percent share of sales of commercial truck automatic transmissions, and makes powershift transmissions and other components for military and off-road vehicles. It grossed $2 billion last year.

Observers believe Allison's business can grow because it will be free to approach vehicle builders who have avoided buying the transmissions, saying they don't want to contribute any revenues to GM. The buyers – Onex Corp. of Toronto and Carlyle Group of Washington, D.C. – said they would sell part of Allison to public investors through stock offerings. But they will probably keep the operation intact because, said Carlyle's managing director, Greg Ledford, "I think it's the best automotive industrial company that I've ever seen."

• GM seeks buyer for its midrange truck business. GM's reported plans to sell off its Class 4 through light- Class 8 truck business had rumors flying during the summer. Rumors identified International Truck and Engine as a serious would-be buyer, though some observers wondered what it would get out of the acquisition besides a portion of GM's customers. International doesn't need GM's products, but a few additional points of market share would make it the dominant manufacturer in Classes 6 and 7 (in which it battles Freightliner). How would the Justice Department view such a deal? Will it even happen? Who knows?

The rumors – and that's all they are, because neither company would comment – do recall GM's sale of its heavy truck business in 1988 to Volvo White Truck Corp., resulting in an aptly named joint venture (Volvo GM Heavy Truck) and combined if confusing nameplate (WhiteGMC) that was applied to Volvo's products (but not GM's heavy Chevys and GMCs, which disappeared). In '97, GM sold its share of the venture to Volvo, which became (and remains) Volvo Trucks North America.

• GM and Isuzu dissolve their joint venture. On Aug. 1, General Motors and Isuzu dissolved GMIsuzu Commercial Truck, a joint venture that was managing the distribution of medium-duty trucks for both participants. There was nothing wrong with the venture, sources at both ends said, but it was an obstacle to Isuzu of Japan's ambitious plans to expand its sales in North America and other markets outside Japan. The dissolution also frees GM to do whatever it wants with its medium-duty line. Although GM last year sold its remaining stake in Isuzu, which once was as high as 49 percent, the two remain engaged in alliances that include medium-duty trucks.

Thus, Isuzu Commercial Truck of America, or ICTA, now distributes its low-cab-forward vehicles to 200 of its own dealers as well as 350 GM dealers who sell and service Chevrolet- and GMC-badged vehicles. These include Isuzu N series and Chevy-GMC W series LCFs. Diesel-powered trucks are built in Japan and the gasoline-powered models are assembled by GM in Janesville, Wis. GM's plant in Flint, Mich., also assembles heavier Isuzu F series and Chevy-GMC T series LCF trucks; those are now distributed by Isuzu and GM to their respective dealers. Customers will probably not notice any changes.

• Ford F-850 coming? Ford Motor Co. might be thinking about returning to the Class 8 market, which top management quit when it sold its heavy truck business to Freightliner LLC. That happened in late '97 and was effective a few months later, when Freightliner acquired the products that became the Sterling A and L Lines, later expanded by the midrange Acterra. Ford agreed not to produce any Class 8 trucks for 10 years, and hasn't; its heaviest truck is still the Class 7 F-750. The prohibition expires early next year, and Ford could conceivably roll over the 33,000-pound limit by adding tandem rear axles and heavier frames to the F-750 and perhaps revive the F-850 model. Executives won't say if they will.

Meanwhile, there's both cooperation and conflict between Ford and International Truck and Engine. The two continue their Blue Diamond joint venture, under which International assembles Class 3 and 4 LCF trucks using International's V-6 diesel and chassis combined with Ford's 5-speed automatic transmission and a cab from Ford's affiliate, Mazda. The two builders also continue their legal battles over warranty costs and withholding of payments for the 6-liter Power Stroke diesel, which suffered mechanical problems. International also claims Ford is developing its own smaller V-8 diesel in violation of a supplier agreement. International had stopped building a newer Power Stroke diesel for Ford, but a judge ordered it to resume, pending the outcome of the lawsuits. Will the institutional hard feelings spoil the long-time relationship between the companies? That remains to be seen.

Here are some other developments reported by several manufacturers:

• More vertical integration. Vertical integration, more an issue in heavy trucks than in mediums, nonetheless grew somewhat this year as Paccar Inc. began using only private-branded PX diesels in medium-duty Kenworths and Peterbilts. They are actually Cummins' ISB and ISC engines with some Paccar-specific accessories, like alternators.

That move pushed out Caterpillar's C7, which had been a popular engine in those models, but the sister builders say that reactions from Cat loyalists among their customers has not been overly adverse. Freightliner and Sterling have also dropped the C7 for '07 and beyond, making Ford and General Motors the only builders still offering it.

• More standard power. Most midrange diesels of any make now come with higher standard power ratings. Builders say that base power ratings are now at 200 or 210 horsepower, compared to 190 or less before the EPA '07 diesels came out. Torque is also up. They explain that combustion technology developed to cleanse the engines' exhaust also makes for higher performance at no more cost. The higher ratings satisfy some customers who believe that they need more power to do the same amount of hauling work, even if they really don't. The "free" higher ratings of course really aren't, as customers now have to pay more – typically $5,000 more – for a Class 6 or 7 truck with a new diesel.

Diesels continue to dominate the midrange market, even if diesel fuel has become more expensive in most areas than gasoline. Diesels use less fuel, which will become a greater advantage when the government places limits on carbon dioxide emissions, perhaps in a few years. Less fuel consumed means less CO2 emitted – one Clean Air area that coincides with higher fuel economy. Diesel engines also last longer than gasoline engines and enhance the value of used trucks. Yet GM and Isuzu are happy to have their gasoline-powered Class 3-4 N and W series LCFs, because such a truck costs thousands of dollars less to buy. GM still offers its big 496-cubic-inch Vortec gasoline V-8 all the way into its "heavy 7" C8500 models.

• More Class 6s. Trucks weighing 26,000 pounds or less can be driven by people without Commercial Drivers Licenses, so buyers have moved toward them and away from Class 7s. This is especially true where drivers' primary jobs are in sales, shelf stocking and the like, and for whom driving is secondary. So the Class 6 market has grown while the Class 7 market has shrunk. The ratio is now roughly 1 to 1, where it used to be 7 or 8 to 1 in favor of the heavier trucks.

• More automatics. The trend toward automatic transmissions grows, with as many as 80 percent of Class 6 trucks and 70 percent of Class 7s getting them, according to some builders. Most are Allison's full automatics, with customers still wary of the relatively new automated mechanicals – even with their promise of better fuel economy – and they are not available from all truck builders. Leasing fleets are the most likely type of buyer to try out midrange AMTs, builders say. The main type of customer still buying manual transmissions is the for-hire carrier whose drivers are more professional than in other operations.

• More interest in hybrids. Much buzz comes from industry and government officials over hybrid trucks, which suppliers continue to develop in cooperation with several truck builders. International, Kenworth and Peterbilt have built medium-duty chassis using Eaton electric hybrid systems, and more are planned. They think hybrids hold much promise in the quest to raise fuel economy and cut exhaust emissions, and the effort has the backing of an organized government-industry group, the Hybrid Truck Users Forum. Among its enthusiastic participants is the U.S. Army, which wants to cut fuel usage in war zones, where the per-gallon cost can be $40 to $300.

In the homeland, 25 International 4000 series "trouble trucks" are now in use by electric utility fleets, and reports so far are encouraging. The hybrids generally get more than double the normal fuel economy and produce drastically fewer emissions because their diesel engines are shut down much of the time they're at job sites. Their booms are powered by a hydraulic pump driven by a transmission- mounted PTO that's spun by the electric motor that gets its juice from batteries. Last month, a Kenworth T300 with an Eaton hybrid system went to work for a lumber retailer in Seattle, and the vehicle is getting about 35 percent better fuel economy than similar non-hybrid trucks in the fleet.

International expects regular production of hybrids to begin later this year, and the others think they're not far behind. Eaton last month announced that its seriestype diesel-electric hybrid system, in which the electric motor or the diesel or both can propel the vehicle, is now available for commercial sale. It was previously under development. Another diesel-electric hybrid system is the parallel, whose engine drives a generator but does not directly propel the truck. There are also series and parallel diesel-hydraulic hybrids for medium- and heavy trucks. Proponents hope that fuel savings of 30 percent to 70 percent will cause commercial customers to begin buying hybrids in volume, a trend that would bring down their still-hefty price premiums.

OEM Sources

We thank these people for their time and help in preparing this article:

• Todd Kaufman, F series chassis-cab marketing manager, Ford Motor Co.

• Melissa Kellogg, director of marketing; Alexis Coffey, manager, medium-duty product marketing; and Tanya Appuhn, manager, medium-duty product strategy, Freightliner LLC

• Mark Karney, marketing director, medium-duty trucks and commercial vans, and Mike Eaves, product manager, General Motors Medium-Duty Operations

• Glenn Ellis, national manager of sales and marketing, Hino Motors Sales U.S.A. Inc.

• Steve Guilliame, general manager, and Mark Johnson, medium- duty marketing manager, Medium Truck Group, International Truck and Engine

• Todd Bloom, vice president, marketing, Isuzu Commercial Truck of America, Inc.

• Bob McDowell, president and CEO, Mitsubishi Fuso Trucks of America Inc.

• Dave Trussell, director of marketing, Nissan Diesel America Inc.

• Jeff Sass, director of marketing, planning and research, Kenworth Truck Co.

• Steven Zwinggi, national medium=duty sales manager, Peterbilt Motors Co.

• Sherri Richards, mediumduty segment manager; Dan Silbernagel, product manager; Brian Daniels, medium-duty powertrain specialist; and Richard Shearing, manager of product strategy, Sterling Truck Corp.