Truckers generally relaxed over ’07 despite fuel pitfalls: HDMA panelists

LAS VEGAS — The near future looks bullish for the truck manufacturing industry, although an imminent pre-buy of moderate proportions will muzzle sales for most of ’07, a group of equipment suppliers and transportation forecasters predicted yesterday.

Speaking to OEM and U.S. fleet executives at the Heavy Duty Manufacturers Association’s HD Dialogue in Las Vegas, Caterpillar general manager of On-Highway Engines Jim McReynolds said he expects North American carriers to ramp up equipment for the balance of this year despite some roadblocks like fuel and insurance spikes, and the lack of drivers to fill those cabs.

The general consensus is that North American sales in class 8 trucks will near 340,000 in 2006, before a 30 percent drop to just over 220,000 in ’07 — after the next major round of Environmental Protection Agency low emission engine rules take effect.

Most truckers are prepared for the next bend in road, it’s the
straightaway to 2010 that has them concerned: Analysts

Just as in 2002, when the EPA mandated the first phase of pollution cuts to new engines, carriers have begun stocking up on existing equipment to avoid buying the new technology after the Jan, 1, 2007 deadline. At that time all diesel engines will have to cut particulate matter by 90 percent of 2004 levels to 0.01-g/hp-hr, and 0.02-g/hp-hr by 2010 for NOx. All engine OEs — including cat, which uses its proprietary ACERT technology instead of exhaust gas recirculation (EGR) — have added diesel particulate filters (DPF) to meet this standard.

However, this year’s pre-buy won’t take as big of a bite out of the equipment manufacturing industry as in ’02. Chris Brady of Commercial Motor Vehicle Consulting highlighted some key market differences between four years ago and present day. In 2002, the industry was handicapped by weak freight demands; low industrial production; excess capacity; rock bottom used truck values; and weak carrier balance sheets, he says, where as now capacity is tight; pre-owned vehicles are getting decent trade value; and operating margins for carriers have improved significantly.

Still, while the pre-buy is expected to be less severe than in 2002, there are several factors that will keep carriers on the fence, says McReynolds. Although most truckers are comfortable with the platform of the new engine technology — having had a kick at EGR and ACERT over the last four years — reliability and fuel economy remain significant concerns for truck buyers coping with fuel prices that show no sign of leveling off.

“The more complex the engine gets, the more fearful the market becomes,” McReynolds said.

While truckers have been warned to brace for a price tag somewhere in the range of $8,000 more per new engine, the jury is still out on exactly how much of a fuel penalty truckers will pay for the new technology. Some are predicting about a 3 percent degradation, but the introduction of ultra-low sulfur diesel (ULSD) throws a wrinkle into the formula.

Not only will ULSD (which reduces the sulfur content in the fuel from 500 parts per million (ppm) to 15 ppm) degrade fuel economy a little further, but preliminary reports by fleets testing the fuel with new engines indicate that ULSD adds more than a dollar a gallon to the current price of fuel, says McReynolds. Furthermore, questions still linger whether suppliers can even make enough of the fuel available and distribute it effectively by the time ’07 truck models are scheduled to hit the road.

Despite all those hurdles, McReynolds still believes that carriers are
generally relaxed about ’07. It’s the last round of EPA regulations in 2010, which virtually eliminates PM and NOx, that has truckers feeling anxious, he says.

Transportation economist Stu MacKay of MacKay & Co. agrees. So far there’s been two possible solutions touted — both far from perfect for North American applications, says MacKay. One approach is a NOx absorber, which allows exhaust to pass over a catalyst, removing NOx from the stream. However, this process requires expensive precious materials and actually increases carbon dioxide in some applications.

The other, Selective Catalytic Reduction (SCR), is the approach being taken in Europe. Many truck manufacturers including DaimlerChrysler and Volvo have indicated they’ll begin trials on SCR on this side of the pond for 2010.

Cat, however, has been vocal in expressing what it believes are the pitfalls of SCR. McReynolds once again reiterated this position at the Dialogue, saying that North American infrastructure can’t properly handle the urea needed for SCR, and that the substance has been known to gel or freeze in cold weather environments. “SCR may be a viable solution,” McReynolds told the audience, “but there’s no guarantee it’s the right solution.”