MT: Class 8 truck sales in the Canadian market grew by about 2,220 units in 2003 – an 11% increase. Sales are also now picking up in the U.S. How are you feeling about 2004?
Vikner: We have moved from cautiously optimistic to cautiously enthusiastic. We don’t want to get too overly aggressive about where we think the market is going to go in 2004 because many things can happen. Right now, with the pent-up demand and where dealer inventories are, the ability to meet the level of orders coming in – over 50,000 the past few months — is not sustainable. Our backlog (as of third week in March) is currently well into the third quarter at both of our plants. We feel the market is going to be significantly better this year than last year, and we believe that 2005 and 2006, barring any unforeseen developments, should be good years as well.
MT: What do you see as the main operating challenges facing your customers today and how are you moving to answer their concerns with your truck and engine designs?
Vikner: It depends on the segment. In general, vocational customers are looking for a product that starts in the morning and works for them all day. Getting the job done is their main priority. Now that perspective is changing a little bit, but not nearly as fast as with the on-highway sector. Highway customers today are constantly looking for products that are more efficient and can lower operating costs with no unscheduled downtime. We are trying to build the best product we can and make sure that we have a support network in place so that when a customer does have some kind of event, we can get that person back on the road as quickly as possible. The investment we have made in our dealer network in the U.S. and Canada over the last two years has been very significant. I think fleets are also looking for somebody else to take on more and more of the kinds of activities that are not core to their businesses, including maintenance. This is not going to happen overnight, but we have to make sure that we continue to build our network in a way that enables dealers to provide more of the types of additional support services customers are looking for. I think the companies that will survive long term will be the ones that are going to be more than just equipment suppliers – the ones that can provide a broader range of services. The key is making sure that all your dealers are strong dealers. If not, it’s going to be tough to sell to fleets that are running coast to coast.
MT: A few months ago you became a member of Volvo’s Executive Committee. What should truck buyers read into that? Should they expect closer collaboration among the two brands?
Vikner: I think it exemplifies AB Volvo’s commitment to positioning the Mack brand on an equal basis with its two other truck brands. In the past , we did not have a person on the committee that was exclusively Mack. I think this sends a strong message to our customers about the value of the Mack brand within the Volvo group. It’s also very important for the Mack family to see that we are represented at that table, which reports directly to the CEO of the parent company. I think that’s a very strong statement as well.
MT: All truck manufacturers have been placing greater emphasis on leveraging economies of scale to curtail price increases. I assume this is a trend that will continue in coming years. How is it affecting how your own company approaches the marketplace, particularly since it has a close working relationship with Volvo?
Vikner: These economies of scale are not only what we want to have but what we need to have to survive. Mack could not have continued to invest at the levels it had been capable of in the past and remained a major player in the future. But we are now part of a group of companies that are world leaders in investing in the architecture of chassis, engines, cabs, etc. Equally importantly, the architecture will be designed in a way that allows products to be regionalized. We understand very well that we can’t sell a European truck here or a North American truck in Europe. The vehicle has to be suited for the market in which it will be sold. You can’t believe the amount of kick back we are getting from people who think we want to sell one truck all around the world just to cut operating costs and make more money. It just isn’t true. As we are designing the chassis, cab and engine architectures, we are very much communicating with the market. This is happening well before we get to the design stage. What we are moving towards is a family of chassis with a similar architecture. But that doesn’t mean that a dump truck frame is going to be the same as a tractor frame, for example. A Mack still has to feel, smell, drive and ride like a Mack. In addition to allowing us to realize the kinds of cost efficiencies and levels of investments we need to stay competitive, moving to global architectures will also enhance our ability to make improvements to our products much more quickly than we could do in the past. Status quo is not an option. A company simply can’t survive selling 25,000-30,000 trucks a year. It wouldn’t have the investment capability long term to grow or even sustain its business in view of all the new technology and regulations. I think you will see further consolidation in our business. You have to be part of a major global player to survive.
MT: Mack recently made the decision to stick with EGR in meeting the federal diesel emission regulations for 2007. Can you explain why you feel this decision is right for your ASET engine lineup?
Vikner: January 2007 is not that far away. There are a lot of issues still on the table. We have been offering EGR engines since October of 2002, and while all of us selling these engines have experienced challenges, we feel we have made a lot of progress. There are issues related to SCR (selective catalytic reduction) that are still unanswered, including the distribution system for the urea solution used in SCR systems. So, on balance, we felt that an advanced version of EGR was the best solution for our customers at this time. But we have SCR technology at our disposal, and we are prepared to use it if we determine there is a market where it makes sense for us to do so.
MT: How soon do you expect to have engines with EGR-based EPA ’07 technology in the field?
Vikner: We are doing our own testing right now. And we plan to have a representative number of these engines available for customer testing in mid-2005. One of the challenges we face is how to manage the test data in a way that gives a level of comfort to the market place. We realize the big problem with the Oct. 02 deadline was that there was not enough testing and we need to avoid that. The ball is very much in our court to develop a level of comfort for the market place so we do not experience the kind of cliff event we saw in ’02.
MT: You have about 55 dealers in Canada. Is that number where you want it to be or is there room for growth?
Vikner: We are not looking to grow the dealer network. I think we cover the markets quite well. I know our dealer ownership group today is better than it has been in a long time. And frankly, the fact that some of them have also taken on the Volvo line as well and treat it as a separate franchise makes their business models even better. They now have a much larger vehicle population for their parts and service businesses. Many have gone 24/7 to support the increase in volume resulting from the ability to sell and support two separate brands.
MT: How does the dealer have to evolve?
Vikner: I think dealers will need to invest in those kinds of services that customers are going to be looking for in the future. Exactly what those are will evolve over the coming years, but certainly it seems that truck operators and fleets are going to look to the manufacturer and its network to provide a broader, unbundled range of services. I think dealers and manufacturers are going to have to be flexible enough to tailor the range of support they provide to the specific needs of the individual customer. I think most dealers, generally speaking, are not structuring their business in this way now. They are selling a truck, selling a part, fixing a truck in their shop – the majority of their business is still structured around that kind of operation. But I think, in the future, they are going to have to evolve their operations so that they are fixing trucks at their customer’s location, or being open longer hours, or providing different types of services such as competitive contract maintenance work and preventive maintenance work. Dealers can no longer be just independent business people. They are going to have to be part of a network providing consistent, national support.
MT: How do you bring the smaller, less aggressive players into this kind of thinking?
Vikner: Some of the smaller guys that have not been as successful as they might have been are more likely to be willing to sell their operations to a neighboring dealer. That’s already been happening. Just as Mack has to be part of a larger organization to thrive, our dealers have to be larger and have the base of business to invest in the technology, people and training needed for the future. We are going to end up with fewer dealers in North America. In the U.S., it wouldn’t surprise me if we ended up with 30 or 40 dealers controlling 80% of the market place, but with a higher number of outlets to provide expanded service. Dealers of that size will have the profits necessary to invest in the future and provide the expanded menu of services the market is demanding.
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