The next round

HOW DO YOUR ORDERS LOOK THROUGH EARLY 2007?
SCOTT KRESS, senior vice president of sales and marketing of Volvo Trucks North America: “I’ve never seen anything like this.” Volvo, like some other truck makers, began filling its production slots from December 2006 backward because many customers wanted to ensure pre-2007 technology but were in no hurry to buy trucks. “For all intents and purposes, ’06 is sold out.”

DEE KAPUR, president of the International Truck Group: “They’re largely full, but we still have some open slots, especially in the coming months.”

CHRIS PATTERSON, president and CEO of Freightliner Trucks: The company is essentially “sold out because we’ve set aside slots for dealers. We’re approaching the point, mid- to late April, where the bell will ring.” Customers are more interested in a pre-order than a pre-buy.

PAUL VIKNER president of Mack Trucks: “Theoretically, we’re sold out for the year, but if a strategic customer needs 100 trucks in the fourth quarter, we’ll find a way to build them. We’re sitting on more orders than we can build through ’06.”

HOW ARE YOUR DEALER INVENTORIES?
VIKNER: “You’ll see dealers take as many trucks as they can in ’06 and be willing to carry them into ’07.” Inventories will drop off by mid-year.

DAN SOBIC, Peterbilt general manager and vice president of holding company Paccar: “We have seen a rise in dealer inventory for the first quarter. Part of it is planned activity on the dealers’ part to make sure they have trucks and inventory. Most customers’ businesses now are very strong, and they are replacing some trucks because of the strong business climate.”

HOW MUCH DO YOU EXPECT TRUCK SALES TO DROP OFF IN 2007, AND HOW LONG DO YOU THINK THE DOWNTURN WILL LAST?
KAPUR: Sales will fall 30 percent. By fall 2007, if the economy stays strong, improvement should begin as concerns about the new technology abate. “You’ll see the economic cycle take over again.”

PATTERSON: Any dropoff should be “fairly compressed. By the second half of next year, we should see things resurging.”

VIKNER: The slowdown in 2007 “will not be as bad as people think it will be.”

KRESS: Judging from talks with many small and medium-size fleets, there won’t be as much disruption as with the ’02 cycle.

WHAT PRICE PREMIUM SHOULD CUSTOMERS EXPECT WITH THE NEW ENGINES?
KAPUR: For Class 8 trucks, $7,000 to $10,000. For medium duty, $5,000 to $6,000.

KRESS: $7,500 for a Cummins or Volvo heavy-duty engine.

VIKNER: $7,000 or more, depending on application, for on-highway customers. Vocational applications might have a higher premium because Mack has used internal exhaust gas recirculation, not cooled EGR, so it’s “a bigger leap” to the 2007 technology. Because of that leap, however, 2007 vocational engines should have 10 percent to 11 percent better fuel economy than 2002 engines.

WHAT CONCERNS DO YOUR CUSTOMERS HAVE ABOUT 2007 TECHNOLOGY?
PATTERSON: Durability and reliability. “The ’02 event was not good.”

VIKNER: “The biggest issue driving the pre-buy is not technical, it’s price.” Yet, even though EGR technology has been around since 2002, some customers still get alarmed because they don’t fully understand the new systems. “They tilt the hood and see all these pipes they didn’t see before.”

KRESS: Not the same concerns as pre-2002, when the technology was totally new. Now the company explains to customers that EGR and Volvo’s pulse technology are being taken to a higher level, and all engines will employ a diesel particulate filter. Fuel costs are the biggest concern now. “We’re telling people they’ll get better fuel economy performance over engines today.” But because fuel economy will drop with ultra low-sulfur diesel, “it will be a wash.”

SOBIC: Some customers are unsure about the quality of the new engines, but those uncertainties should be cleared up before 2007. “In the next six months of testing, we’ll have reliability data, we’ll have fuel economy data, we’ll have many more data points available to customers than we did the last time around.”

KAPUR: “They’re concerned about the cost, and they bring a lingering bad taste from 2002.” The experience then was “a lot of failed engines, failed emissions components early on, but they started righting themselves.” Now that fuel costs about twice as much as in 2002, “fuel’s even more of a concern.”

WHAT IS YOUR FORECAST FOR THE USED EQUIPMENT MARKET?
SOBIC: “Regardless of the new engine technology that’s coming, the used truck market is very strong” because of improved economic conditions. “I see it continuing in the near future.”

PATTERSON: “We’re having trouble feeding it,” but “this time around I think supply and demand will keep things in balance.”

KAPUR: “I expect the used truck market in ’07 to be strong,” as an alternative to buying the new engine technology.

KRESS: “If there’s a decent demand for product, then a used truck will have good value because it’s pre-’07. We’ve already seen a lot of fleets that are buying 3- and 4-year-old trucks.”

WHAT’S IN THE IMMEDIATE FUTURE FOR FUEL-SAVING TECHNOLOGY, SUCH AS AUXILIARY POWER UNITS?
SOBIC: “We’re introducing a universal APU connector that will allow customers in the field to put off-the-shelf APUs into our truck and dramatically cut down on installation time. At the same time, we’re developing a proprietary system, Comfort Class, that’s battery-based and will be available in early 2007. The third thing: In our overall truck design we’re paying increasing attention to aerodynamics.”

PATTERSON: “They’re going to have to get cheaper and are going to have to take less tare weight. It’s still a good solution.” Freightliner continues to research fuel cell technology for heavy-duty trucks. Auxiliary power units hold much more promise than do truck stop electrification systems.

Officials from Kenworth, a subsidiary of Paccar, declined to participate in these interviews.

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