MT: Obviously 2007 has been a tough year for truck manufacturers with steep drops in sales, as expected following the pre-buy trend the last couple of years. How are you feeling about 2008?

Jackson: 2008 will be a good year for Peterbilt. Initially, buyers were wary of the new engine technology and the price, however the technology has proven itself and is working well. We were the first to be 100% on the installation of the new engine technology. We’ve installed only the ’07 engines in our new models since March. There is a higher price with the new engines but there are also benefits. Buyers are now starting to think about the next emissions deadline, in 2010. If they are going to replace their fleets ahead of that deadline they will have to start buying equipment soon. We are seeing some of the larger fleets asking for trucks.

MT: You mentioned they were scared of the technology. Is that not disappointing considering the experience after the 2002 emissions change was that the engines performed better than expected?

Jackson: I think in certain cases, the OEs may have contributed to the scare by talking so openly about our testing of the technology. And then there was the price tag. So the industry may have induced that pre-buy a little bit because of that. Plus, the 2006 freight markets were strong and buyers were expecting those historic levels to continue. They were buying at the upper end of freight levels and also pulling things forward to delay purchases in 2008, which created a double bubble and that hurt us this year. But we are starting to see the tide turn. From a Peterbilt standpoint, more than 80% of our inventory on dealer lots is the new technology.

MT: Last year you produced your final Model 379 Legacy Class Edition. The 379 had a 20-year run. How have the needs of your customers changed over this time?

Jackson: a way, the needs of the customer have not changed. They have always looked for a quality product that has good drivability and that they can be proud to drive. The market has not changed in terms of the respect the Peterbilt Model 379 received.

Our Model 379 will always be an industry icon -it was the highest quality vehicle out there. But the new Model 389 is also of the highest quality and doing very well in the market. Customers now respect that vehicle as well, including the aerodynamic enhancements we engineered. As long as the Peterbilt oval is on the truck, drivers know the quality is there and that we stand behind the product.

MT: Another thing that hasn’t changed much in recent years is the challenge of attracting and retaining quality drivers. What role can a truck manufacturer play in helping fleets meet this challenge which has so far evaded them?

Jackson: You can’t look at any one thing. But I can tell you that fleets buy Peterbilts because our trucks have proven to retain drivers. It’s the whole experience of the drivability of the truck, the overall quality of the truck. Drivers gravitate to the Peterbilt product. We focus on building the highest quality product that is easy to drive, has the right driver comforts, is designed ergonomically with the driver in mind and we work diligently to ensure the customer has an excellent service experience. If a Peterbilt driver breaks down on the side of the road or goes into the dealership for service, they will be taken care of quickly. Our TruckCare Call Center is a free service to any driver, driving any truck, for any company. We are still the only service that is free. Our goal is to get that truck moving as quickly as possible, and our dealers do whatever they can do to make that happen. And while the customer is waiting at the dealership, we will provide them with phone and Internet access and other amenities.

MT: recently entered the Class 5 market with your Model 325. Why was this the right time to do so and how does the 325 address the specific needs of this market segment?

Jackson:Class 5 market is one of the fastest growing segments in the medium duty market place and until the new Model 325, Peterbilt did not have a specific product for that market. We saw the growth potential and developed a product to serve that customer. We believe the high quality we bring to every vehicle, in terms of low overall lifecycle costs, durability and reliaon bility for example, is something the industry appreciates no matter what class of vehicle. Further proof of the strength of Peterbilt’s medium-duty product is the J. D. Power Medium Duty Conventional Customer Satisfaction Award which we have won two years consecutively.

MT: Can we infer from your move into the Class 5 market that there may be future plans to offer vehicles in Class 3 or Class 4?

Jackson:are always looking for opportunities to grow our business. I don’t think you will see anything in the immediate future, but we are looking to expand into other areas.

MT: Your two most aerodynamic trucks, the Models 387 and 386, have been recognized as fuel efficient and environment friendly by the Environmental Protection Agency’s SmartWay program. You claim an impressive 10% to 20% improvement in fuel efficiency for these vehicles. Can you outline the most important design elements that are helping you achieve such fuel improvement? How far can this envelope be pushed?

Jackson:There isn’t one single feature that has led to the improvement in fuel economy but rather a combination of several design enhancements. Both models have sloped hoods, roof fairings or a high roof off the sleeper into the trailer and they both have side fairings. It’s really a question of not disturbing air as you’re going down the road. We do a lot of testing and analysis, both our own and at 3rd parties. The envelope has not been reached, and I believe we can continue to make strides in aerodynamic efficiencies. I also believe you have to look at the truck and trailer as a fully integrated package. We must deliver a total solution to the customer.

MT: So what’s the next step for you?

Jackson:next step is examining how to integrate engines into Peterbilt trucks and what we can do on the drivetrain side to optimize the power and fuel economy of our vehicles and maximize performance. Cummins and Caterpillar will continue to supply engines and we will also have our own engines as well. We have to look at ways to optimize that integration with the vehicle as well, as opposed to trying to engineer multiple solutions for each model.

MT: Last spring you introduced your latest hybrid initiative: a hybrid electric Class 8 Model 386 for long-haul applications. The truck is being developed in coordination with Eaton and Wal-Mart. What are the most significant accomplishments and challenges revealed during the testing and evaluation process to date?

Jackson: the Model 386 hybrid electric, we’re seeing fuel savings from 5-7% through improved launching, accelerating and hill climbing capabilities. For hybrid applications in particular, the advantage is in stop-and-go situations in the medium-duty models. In addition, when the idle reduction mode is active, engine operation is limited to charging the battery, which is an automatically controlled process that takes only about five minutes per hour to fully charge the system. During rest periods, we’re seeing a 90% reduction in idling, while still providing high-power A/C, 120VAC, and 12VDC to accommodate the sleeper hotel loads. We will continue to work with both supplier and customer to keep the momentum going. We will have a Class 8 hybrid product in the marketplace by 2010 and medium-duty products in production in mid-2008. We are focusing more on how we impact the environment and the community, whether it’s Peterbilt, one of our dealers or our customers. There’s a lot of interest in environmental solutions and hybrid vehicles and we feel fortunate to have partners like Eaton and Wal-Mart.

MT: For fleets looking to invest in such vehicles, can you provide an idea as to what they should expect in terms of price compared to similarly equipped non-hybrid vehicles? We’ve heard estimates on the cost of adding a diesel/electric system ranging from $8,000 to $40,000.

Jackson: I would love to tell you, but I don’t think we know enough at this point to say what the price is going to be. There are still transitions and technology changes we are going through. We are also building hybrids now in small quantities, which affects price. Building five is much different than building 5,000 in terms of price. We may also go through additional design changes. So to give a price now would be premature.

MT: What has the response been so far from your fleet customers? Are they ready for such technology?

Jackson: Hybrid technology is absolutely on the radar because most businesses see the importance of going green. From an operating standpoint, if hybrid vehicles can extend service intervals, improve mileage or reduce costs -everyone is interested, especially when considering the margins fleet operators live on. We have one over-the-road Class 8 hybrid, the Model 386.We will offer a hydraulic hybrid version of our Model 320 for the refuse market. And our medium-duty hybrid Models 330 and 335 will go into full production early 2008.Peterbilt is leading the way in hybrid technology.

PART II Executive View with Bill Jackson will continue next issue.

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“Fleets buy Peterbilts because our trucks have proven to retain drivers”