There’s a new “math equation,” so to speak, for truck pricing being deployed by OEMs as a way to provide a cost advantage for both themselves and their customers – one that seeks higher sticker prices in return for lower operating costs over the vehicle’s initial ownership period.
Mark Lampert, senior vp-sales and marketing for Daimler Trucks North America (DTNA), explained in a recent interview with Fleet Owner that this “new math” is how many OEMs – and DTNA in particular – hope to recoup the tremendous amount of money manufacturers spent over the last decade adding emissions control technology to their products in order to comply with federal regulatory mandates.
“The price of our vehicles has gone up significantly, especially due to 2007 and 2010 emissions control technology, but not our profit,” he said. “It’s very difficult to pass on cost increases of this magnitude, so that’s why we’re working towards a different valuation with our customers going forward.”
For example, on average, OEMs added roughly $1,800 to $3,000 to the base cost of a Class 8 truck in 2002 to meet the first round of federal exhaust emission regulations, followed by an extra $5,000 to $10,000 per truck to meet the 2007 rules and a further $6,700 to $10,000 to meet the final round of emission mandates in 2010.
However, from DTNA’s perspective, the selective catalytic reduction (SCR) technology it uses to comply with the 2010 emissions rules provides a significant savings to customers over time via improved fuel economy, which Lampert noted can be on the order of 5%.
So, going forward, he explained that OEMs like DTNA are going to present a new “return on sales” formula to customers based in part on those fuel savings.
“If we can provide you, the customer, with increased fuel economy and improved uptime – meaning less money spent on maintenance and less time in the shop – then we will ask for a premium for our product,” he noted.
Yet this premium will be structured around the “ownership cycle” of the vehicle, Lampert stressed, meaning the customer should make money on this deal as well over time.
“We expect the customer would be able to pay back the premium we need in a year or two from the fuel and maintenance savings,” he pointed out. “That means on the back half of the ownership period, those savings drop to their bottom line. That’s how we plan to deliver a competitive advantage both to ourselves and our customers going forward.”
This “new math” is also part of a list of critical attributes OEMs must offer truck buyers now and over the long term, according to Lampert.
“First and foremost are fuel economy savings,” he noted. “The second is offering the lowest total cost of operation (TCO) possible over the ownership cycle. The third is a 24/7 network for parts distribution and service. Finally, fourth, is the value proposition; we know customers are sensitive to price but also willing to explore opportunities if they can benefit.”
Lampert added that most fleets understand that manufacturers simply cannot eat the cost of mandated emissions control technology or the changes that will be necessitated to comply with the new greenhouse gas (GHG) fuel economy rules coming down the pike for heavy-duty vehicles. Yet they will demand a payback calculation to help them afford any such additional cost.
“Customers understand their cost of operation better than anyone, so they know what saving 1/10th of a gallon in fuel will mean to a fleet buying 100 million gallons of diesel per year,” he said. “So if we ask for say $7,000 in extra investment in a truck up front that they can recoup in 13 months of operation out of a 54 month ownership cycle, they know they will stand to make money in the long run.”