U.S. truck makers gird for painful year

U.S. truck makers gird for painful year The market for heavy-duty trucks in the United States is expected to implode this year as the soft economy and new environmental mandates for diesel engines combine to create a witches brew that has scared off motor carriers from buying new equipment.
   Production of Class 8 trucks will drop significantly to about 160,000 units compared to 290,000 units in 2006, Richard A. Howard, vice president of DaimlerChrysler Truck Financial told a small luncheon crowd Friday.
   DaimlerChrysler makes trucks in North America under the Freightliner, Sterling Truck and Western Star brands. In other parts of the world the truck group primarily sells Mercedes Benz vehicles.
   Freightliner and its sister companies will see total sales plummet 40 percent this year, and they are trying to trim operating costs and idle plants in response, Howard said at the Transportation Table event sponsored by Traffic World magazine.
   'Orders are looking very thin ' We anticipate further weakness for some time yet,' he said.
   The primary reason for the down cycle is the U.S. Environmental Protection Agency's requirement that new trucks built after Dec. 31, 2006 include cleaner burning diesel engines. Under EPA requirements, engines must reduce nitrogen oxide emissions by more than 50 percent and particulate matter by more than 90 percent.
   The engines have increased the cost of a new truck by $7,000 to $10,000, but truckers are also wary about increased life cycle costs as the engines get worse gas mileage and are perceived as potentially less durable.
   In anticipation of the more expensive trucks, many fleets prebought 2006 models to minimize new equipment needs during the next few years until the new engines prove their roadworthiness under daily operating conditions.
   Truckers already predisposed to sit on the sidelines are under no pressure to add new capacity because the economy has slowed in recent months, and they feel able to meet customer demand with their existing fleet. The economic dip has resulted in fewer sales than normal and left dealers with a substantial stock of 2006 trucks.
   The decrease in freight demand has led to increased delinquencies among small trucking companies and more interest in leasing vehicles because of the predictability for managing life cycle costs, Howard said.
   Overall, truck manufacturers such as Freightliner, Navistar's International Truck & Engine, Paccar and Mack Trucks, plan to lay off at least 7,000 manufacturing workers to try and weather the production slide. Freightliner accounts for one-third of all heavy-duty, over-the-road truck sales in North America.
   Detroit Diesel engines used in DaimlerChrysler trucks are performing well relative to expectations, Howard said. Detroit Diesel, a subsidiary of DaimlerChrysler, uses an advanced fuel system, exhaust recirculation and an after-treatment system that replaces the current muffler.
   The company's vocational and medium-duty truck businesses are still doing well, he added.
   Howard said DaimlerChrysler was better able to prepare and test the 2007 engines than in 2004, the last time that the industry was required to implement reduced emission technology for diesel engines. The next big milestone for truck makers is 2010, when even more stringent emission limits are imposed on new engines.
   The changing technology requirements mean truck companies only have two or three years to amortize their investments in new engines before they must be redesigned again. Howard said that the auto and truck maker would try to save money by leveraging the parent company's technology base and using engines built for other global markets that meet or exceed the U.S. emissions standards.
   He suggested that other countries have successfully used tax breaks for truck buyers to smooth out the demand swings and get them to more quickly adopt new engine technologies.
   Truck makers went through a similar downturn in 2004 as motor carriers postponed purchasing the new engines. It's tough for truck manufacturers to maintain normal business operations in an industry subject to roller coaster production cycles, but Howard said the EPA rules were at least predictable compared to the economy and demand for truck services.
   'It's difficult to manage a business with steep fluctuations,' he said.