The “sticker shock” problem

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Fuel economy mandates attempt to push more efficient designs and technologies into the new vehicle marketplace. [But] as a practical matter, unless fuel economy regulations are ‘appropriate, cost-effective and technologically feasible,’ as called for in the proposed regulations, prospective customers will not purchase new vehicles and engines, reducing sales and leaving stock vehicles languishing on dealer lots.” –Kyle Treadway, chairman of the American Truck Dealers group and also president of Kenworth Sales Company in West Valley City, UT

So I talked with Kyle Treadway by phone this week, not long after he’d returned to his Utah digs after testifying in Chicago at the first official hearing concerning the federal government’s proposed greenhouse gas (GHG)/fuel economy standards for commercial trucks and buses.

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Treadway (at right) told me most of the commentary centered on the environmental, technological, and fuel saving potential of these new rules, put together by the Environmental Protection Agency (EPA) in partnership with the National Highway Transportation Safety Administration (NHTSA).

Yet one topic remained noticeably absent from the discussion, one he pointedly stressed in his own statement for the record: the cost.

“You’ve got to look at these proposed rules through the lens of the trucker’s business model, and they are not truly doing that,” Treadway told me.

“It’s estimated that the improvements required to make trucks comply with these fuel economy standards will cost about $6,000 per unit – a price increase that’s being termed ‘modest.’ What they forget is that’s on top of the $21,000 already added to the base cost of highway tractors between 2002 and 2010 to reduce emissions in accordance with federal rules,” he pointed out.

[Last year during ATD’s annual convention, Treadway talked to me about the broader challenges facing dealers and truck owners alike in what were then – and still largely are – difficult economic times.]

And in some ways, such “sticker shock” is working against the very goals EPA and other agencies are setting for the trucking industry: namely, the introduction of cleaner, more fuel efficient equipment.

“Look at what’s happened over the last decade: sales of new trucks with the latest emission-reduction technology dropped sharply as fleet’s tried to avoid the extra cost,” Treadway said. Fleets also put off buying new trucks, to the point where the average age of Class 8 trucks in U.S. fleets is now 6.5 years – the highest it’s been in three decades.

“My customers have options,” Treadway stressed in his testimony. “Instead of choosing to buy new fuel-efficient vehicles, they can instead pay my service and parts operations to help them keep their existing vehicles on the road, up to and including re-building engines or vehicles.”

Yet no single variable cost is more critical to my customers than fuel , he pointed out, so consequently, the overwhelming majority of customers ordering a new vehicle or purchasing one from his stock will focus on fuel economy; at least once they’ve determined which vehicle and drivetrain features are essential to meet their specific needs.

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“Fuel economy will never rank first on their list of purchase decision criteria, but it will always be near the top,” Treadway said.

Yet the crucial point is this: sticker price is always a concern. As a result, Treadway said his customers can buy used vehicles at a lower cost than new federally compliant ones. “That is why new fuel economy mandates must be affordable – that the cost must be justifiable up front – in order to have any chance at success in the marketplace,” he warned.

“The practical needs of truck customers may sideline the purchase of certain fuel-efficiency features,” he explained. “For example, customers who regularly haul full loads over tall mountain passes in any weather, as many of mine do, are not likely to consider super single or double-wide tires fearing sub-par winter performance or the high cost of potential blowouts. In addition, local delivery customers typically can’t justify the cost of aerodynamic bolt-on [components] or anti-idling controls. That doesn’t mean that these features won’t work for some, only that they aren’t right for all.”

Many fleets are also coping by significantly extending their trade-in cycles. One flatbed carrier I talked with has shifted from a 36-month trade cycle for its OTR tractors to a 5 year (60 month) cycle, simply to gain time to pay off its equipment investment – and they may even stretch that out longer in the future to cope with rising sticker prices.

“Remember, the vast majority of prospective new truck buyers are businessmen and women who rationally consider the up-front cost of vehicle features, especially during times when credit is relatively tight and/or freight rates and profit margins are relatively low,” Treadway said.

“In order to work, any fuel economy mandates being considered for model years 2014-18 and into the future must pass economic muster,” he stressed. “Especially with engines and other drivetrain components, improving one metric, such as fuel economy, must not diminish other critical performances metrics or result in higher vehicle costs. Otherwise, fuel-efficiency improvements won’t get bought and will fail in the marketplace.”

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