TAMPA, Fla. – These are challenging times to be a truck OEM. The Environmental Protection Agency (EPA) insists on the implementation of ever-cleaner engine technology, suppliers cope with raw material shortages and end-users struggle to contain costs in the face of record fuel prices.
Truck News sat down with Mack president and CEO Paul Vikner and executive vice-president of Class 8 programs, Steve Homcha at the Technology and Maintenance Council meetings in February to discuss these issues and others:
TN: Research conducted by our Transportation Media research division suggests 38% of Canadian for-hire fleets plan to pre-buy 2006 equipment in advance of the costly 2007 emissions technology. Are we seeing signs of a pre-buy now?
Vikner: When you look at the order intake, which came back pretty strong at the end of last year and into January and even the early part of February, right now the order intake coming in is very, very strong for us and we assume for other manufacturers as well.
I think there’s definitely a pre-buy going on. The more people hear about the pricing of the trucks from manufacturers, I think you’re going to see more customers lining up to make sure they get their production slots in for ’06.
TN: How do you think the ’07 pre-buy will compare to what happened in ’02?
Vikner: I think there are some fundamental differences frankly, in 2002 we just came out of the 9/11 issue, the economy was less stable and there was less certainty as it related to capital equipment purchasing.
I think most people’s forecasts are saying that 2007-2008 should remain healthy years – maybe not boom years, but certainly there’ll be some economic growth and I think those issues lead to more optimism leading into this emissions change.
TN: So you don’t think the fallout in 2007 will be as severe as it was in 2003?
Vikner: 2006 has the potential to be every bit as good as last year was, maybe even better, but I don’t believe you’re going to see OEMs and component manufacturers ramping up capacity.
I think you’re going to see the build rates stay the same as they are right now, so in 2007 if the economy remains decent and if forecasts for ’07-’08 remain relatively the same, people who need trucks are going to buy them in 2007.
Now are they going to buy in February of 2007? I think there’s certainly a chance that the early part of ’07 – February, March and April – is going to be pretty rough. But I think if the economy holds up and the industry doesn’t go crazy in ’06 shipping out trucks and investing in more capacity, I think the fallout could be less than people think.
I think the industry, in a very healthy way, is taking into consideration the cyclicality of the market and planning for a bad year. If it turns out to be better than what we’re planning for, then great. We’re bringing in the elements we need – flexibility and the ability to reduce overhead and cost – into the planning process today. If we don’t need to do that next year then great.
TN: It’s February, 2006. What stage are you at in terms of testing your 2007 engines?
Homcha: The majority of our testing is still internal. We are starting to put out the first of our field test trucks, but what we found in EPA ’02 was that we put out trucks with good intent very early but we still had a lot of evolution in terms of the design.
Before long, what we had out there ultimately wasn’t very representative of what we were ultimately taking to the market and it became a big challenge to continually update them. This time we purposely waited longer in the process to really stabilize the direction we’re taking and get sufficient internal experience with them before we turn them over to the customer.
TN: How is your internal testing programme progressing? Are there any concerns so far?
Homcha: I would say we’re about where we expected to be. Cooling is always a concern for us, but at this point it’s okay. We have more work to do there.
The DPF is the biggest piece of new technology and we’re still working through the whole issue of regeneration – the regeneration cycle and electronic controls, and how we can make sure we don’t regenerate excessively or let it run too long to the point it starts to clog up.
We need more experience with that. We have not had a problem with how the trucks have run. They’ve run okay with the DPFs in place but we need more time to get ourselves fully confident with what we have.
TN: Will DPFs be standard across the industry or will they vary from truck to truck?
Homcha: The DPFs are largely the same. The DPFs are either made by Fleetguard or ArvinMeritor so in that regard a DPF largely becomes a DPF.
The key area where there could be some subtle differences would be in the areas of regeneration strategy. We need to go into a heat mode to burn off the soot that accumulates in the DPF, you burn that off at high temperatures and once or twice a year you need to clean the residual ash out. But you won’t see one DPF that looks like an elbow and another that looks like a nose, they will all be about the same.
We do, however, have different configurations of the DPF. One we call a space saver and that mounts off the frame of the chassis. That is principly used on highway trucks with sleepers where we have sufficient frame underneath the cab and the sleeper. Or, on straight trucks, dump trucks, mixers, or refuse trucks we have a separate configuration where the DPF is the lower section of the muffler, because chassis space is at such a premium. So there are two varieties and that’s it.
TN: Are there any concerns about the use of PC-10 or ULSD?
Homcha: There are no significant concerns. We’ve been reading lot of comments in the trade press over the availability of ULSD but I think from what we’ve seen so far it’s clear the major petroleum producers plan to have ULSD in the pipeline in the June-July time period and that’s all they’ll be putting in the pipeline from that time on. So it will be available, but I think the key is for the distributor and the filling station to run through several tankfuls of ULSD before the end of the year.
The key issue is not just availability, they need to clean out the pipes and the tanks and the only way to clean it out is to run ULSD through, which will become something a little higher than ULSD but with every batch you run through, it cleanses out the residual sulfur that’s in the tank.
If high volume truck stops are getting ULSD in July or August, they’ll cycle through that in weeks and they’ll be cleaned out and in good shape to go.
TN: If contamination or misfueling should occur, what will the repercussions be with the new equipment?
Homcha: The consequences are to significantly diminish the life of the DPF so it will regenerate faster, will require cleaning more quickly and failure to do that – if you keep running it and you’re not cleaning it out – will clog it. We certainly encourage our end users to use nothing but ULSD, that’s really what the DPF needs to function properly.
Vikner: It’s not the engine, it’s the DPF, that requires ULSD.
Homcha: Yes, the older engines will run on the ULSD with no consequences and if you’re simply talking about the ’07 engine, it will run on today’s higher sulfur content fuel, it’s the DPF that you clog if you run more sulfur in it.
TN: What do drivers need to know about the ’07 engines? Will they perform differently?
Homcha: They will drive just like today’s engines.
The power ratings and torque curves, if anything, will get a bit better because Mack will be introducing its new line of engines. We recently introduced the new Mack 11 litre MP7 engine but we will also bring the 13 litre MP8 and in early 2007 the 16 litre MP10 into the portfolio, and all of those engines have a very strong torque curve.
As a result, the driver should be into the throttle a little less and fuel consumption should be a little bit better.
TN: Mack also int
roduced a new highway tractor in 2005 – the Pinnacle. Should that put to rest any rumours that Mack plans to abandon the highway market?
Vikner: Historically, the highway market has been a very important part of our business.
I think in recent years people have identified Mack as more of a construction/refuse specialty heavy truck maker.
But over the last 20 years, more than half our products have been highway products and certainly that product is very, very important to us for our future.
The new engines are too. The MP8 will give us close to 500 hp and being in that class of highway power now will be a big help for us in terms of getting more aggressively into the highway market.
We have what we feel is a reinvigorated highway presence. Certainly in Canada the highway market is a bigger segment of the market than it is in the States, so our guys in Canada have been very pleased with what we’re bringing out now.
TN: Although Mack is owned by Volvo, how important is it for Mack to maintain its identity?
Vikner: Volvo acquired Mack and Renault five years ago and while there was some initial apprehension and anxiety amongst the Renault and Mack people, I think in the end it didn’t take long for us to realize that Volvo realizes Mack has a very strong brand image and brand presence.
The worst thing we can do is blend these two brands together into something that is less than what they are today.
Volvo’s a good product, Mack is good product.
Both have different positions in the market and both have good quality vehicles.
The worst thing we can do is put a bulldog on a Volvo or a striped grille on a Mack – that would be crazy. We’re very much committed to having three separate identifiable brands in the market.
I have to add though that pretty much everybody knows that Volvo owns us and I think overwhelmingly the feedback we have from the market is that people see that as a strength of Mack.
TN: With its 625 hp D16, Volvo really raised the bar in terms of horsepower. Will we see comparable ratings from Mack’s MP10 when it’s released in 2007?
Vikner: What horsepower ratings we end up with depends on the applications of the vehicles we have, but if we need to be in that 600 hp range, there’s no reason why we can’t be.
Where we eventually end up with it in our product range, we’ll have to wait and see. But certainly it’s very exciting for us to have that type of an engine.
TN: Several manufacturers have suggested the new engines will cost US$7,000-$10,000 more than today’s. Does Mack agree with those estimates?
Vikner: Volvo announced yesterday the 2007 engines will cost roughly $7,500 more. International said $7,000-$10,000. I would have to say we’re all in a similar range.
One thing to keep in mind, it’s not just the engine that costs more, it’s the design of the vehicle to accept that engine, the cooling system and the DPF installation.
And then you also have the factoring in of normal price increases from model year to model year. All that price increase is not just geared towards the technology of EPA07.
But we as OEMs don’t all get together and talk about this, we can’t do that, but it seems we are all challenged by similar kinds of cost pressures so I’m guessing you’ll see similar cost increases.
TN: Speaking of cost increases, a shortage of raw materials such as steel has also plagued the industry in recent months. Is that an ongoing problem?
Vikner: It’s less of an issue than it was, but we have to constantly watch raw materials. Now it’s not so much the availability as it is the pricing.
We’ve seen prices for copper, steel, aluminum, rubber and other products go up in ’04 and ’05. They’ve stabilized now, but it’s still an issue.
I don’t think supply is as much of an issue anymore but once you pass some of those increasing costs on, in terms of pricing, most people don’t want to back up.
Homcha: In early 2005 the supply issue really peaked for us and the industry really learned how to rebalance.
Now, we see shortages coming and make the appropriate adjustments and find a way around it. The key right now is that price levels have not relaxed at all.
Vikner: I think some of our customers have learned to deal with some of the shortages.
For example, a customer may usually want Goodyear tires on his truck but if it’s going down the line and he can’t get the Goodyear tires he wants, we ask if they will take something else? Most of our customers are saying ‘Give me whatever tires you can get – I’ll take care of that when it gets here.’
TN: Do you think government should offer tax incentives to help offset the costs of purchasing the more costly environmentally-friendly engines?
Vikner: I think it could be extraordinarily important. I think there could potentially be tax incentives that would take away this enormous pricing pressure. I think it would really help smooth out the production demand through ’06 and into ’07.
Frankly, I don’t think there’s a very good chance of that happening. I think it’s too late now. In the US it didn’t make final budget cuts so it looks very unlikely there will be any kind of incentives this year. But although we couldn’t get it done this time, maybe in 2010. We set the stage and set the organization in place and we’ll keep preaching the gospel as how this could have an important impact on getting the cleanest possible trucks into the marketplace as soon as possible.
– The conclusion of Truck News’ exclusive interview with Paul Vikner and Steve Homcha will be featured in the July issue of Truck News.
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