New Regs Drive Up Truck Prices

Buy now-pre-2007 models don't have to be retrofitted to meet new standards.

Federal rules aimed at making heavy-duty diesel truck engines run 90 percent cleaner by 2007 are expected to drive up the prices for new trucks and drive down the fuel mileage those engines can get. Fleet managers can, however, avoid the added new truck costs in 2007 by upgrading their truck fleets now, while the old laws are still in effect, according to a number of industry watchdogs.

The new laws apply to truck model years 2007 and later and mandate much lower allowable particulate, nitrogen oxide and non-methane hydrocarbon emissions. They cover all heavy-duty vehicles'with a gross vehicle weight rating of 8,500 pounds or more. They also eliminate the current crankcase emissions control exception for heavy-duty diesel engines.

Once engine manufacturers roll out their 2007 models, new truck costs are expected to rise because equipment manufacturers will need to improve lubricants, change vehicle designs and add aftertreatment components, like additional filters, absorbers and selective catalytic reduction systems, to reduce emissions. Just how much the new systems will add to truck sticker prices is a matter of debate, but industry analysts, insiders and government regulators all agree that truck prices will definitely rise.

Some estimates place the expected cost increases at about $10,000, while the U.S. Environmental Protection Agency (EPA), the author of the new rules, predicts much lower pricing gains. "We're looking at about a 1 percent increase for the additional new equipment," says John Millett, an EPA spokesman.

But even at just 1 percent, that could amount to about $1,500 more per truck, assuming that new trucks cost about $150,000 each. It could, therefore, be to a fleet's benefit to do a pre-buy now, says Glen Kedzie, assistant general counsel for the American Trucking Associations, based in Alexandria, VA.

Trucking fleets that do buy new vehicles now are not required to retrofit pre-2007 vehicles to meet the new standards. "Though EPA does encourage the retrofitting of older equipment, it is strictly a voluntary program," says Millett.

Kedzie warns, however, that pre-buying could mean spending extra cash at a time when many companies had not planned on it. "You have to be mindful of the potential effects on your own operations," he says.

Here are a couple of questions Kedzie suggests fleet managers ask themselves before deciding to pre-buy:

*Can you absorb the cost of buying additional trucks outside of your normal buying cycle?

*If you pre-buy, how long do you plan on holding onto the new trucks?

*Will you ride out the standards through 2010?

*How far will your new vehicle warranty take you?

*When you start getting beyond three or four years with your trucks, operating costs start going up. What are your maintenance costs going to be?

"You need to be mindful of these things if you plan on getting into a longer turn-over cycle for your trucks. You also need to involve your maintenance folks, purchasing folks, accountants, etc.," he advises.

Other Considerations

Despite the temptation to pre-buy, there are many other things to consider as well. For one, several engine and truck manufacturers are now trying to secure tax credits and other government incentives to help truck buyers defray the rising costs once the new engines hit the market. EPA has already been working to get government help for school districts (whose school buses are also included in the new rules) and other government agencies, says Millett.

Next, there are the environmental impacts, as the ultimate goal of the new rules is to improve air quality. "All of us need to clean up the air, and buying trucks now to avoid the standards does not meet that goal," says a spokesman for the National Private Truck Council, based in Alexandria, VA.

"Engine manufacturers are committed to meeting these standards and are doing their part to improve the nation's air quality," adds Jed Mandel, president of the Chicago-based Engine Manufac'turers Association. "Engine manufacturers have already achieved significantly lower emissions from energy-efficient diesel engines. Now we're working to reduce emissions another 90 percent and make near-zero emissions diesel technology a common reality."

The last time the EPA lowered diesel truck emissions standards was in 2002, and, at that time, there was a massive pre-buy, recalls Kedzie. The environmental benefits the EPA anticipated in 2002 were never fully realized because so many companies were not buying the newer, cleaner engines, he suggests.

Also in 2002, those pre-buys caused havoc on the truck and engine manufacturing industries.

"There was a massive pre-buy, whether companies needed the new equipment or not. This caused a backlog in the production cycle of trucks and engines, and if you did not get your order for new trucks in on time, you got shut out," Kedzie recalls. "Truck manufacturers ramped up their production, but many couldn't handle the demand."

Then once the 2002 engines rolled off the assembly line, demand shrunk drastically and many truck and engine manufacturers had to lay off large numbers of workers.

Now Kedzie sees the same patterns playing out in advance of the 2007 rules. "People are ramping up their truck buys, and if they haven't placed their orders yet, they are budgeting to do so," he says.

This time around, truck and engine manufacturers are better prepared. Many expect to have the first prototypes of their 2007 engines available in the spring and ready to debut at the upcoming truck shows. But for some, that may not offer much relief.

While optimistic about this new equipment, Kedzie notes that information gained from those test engines will be kept confidential between the engine manufacturers and the companies that use them and will not be shared with the rest of the industry. "If you're not in that first test group, you will not know about potential problems with the engines until you spend the money to buy them," he says.

Also leading to large uncertainty right now is the effects the new EPA-mandated fuel will have on engine performance, fuel efficiency and prices at the pumps. The 2007 regulations re'quire fuel producers to cut the sulfur content in diesel to 15 parts per million (ppm), down from the current level of 500 ppm. The new fuel, which must be available by June 1, 2006, is likely to cost more because of the additional refining and processing required, and could add several hundred dollars in fuel costs per truck each year. But, EPA says that those costs can be offset by the reduced maintenance that will be required once trucks start using the new fuel.

"The new low-sulfur diesel fuel will help fleets burn cleaner and more efficiently. Sulfur in the fuel can actually cause greater maintenance issues, like corrosion, clogging and build-up over time, all of which can be avoided with the new fuel," says Millett.

But ultimately, costs are likely to be the main deciding factor. "2007 will be the third major engine change in the last seven or eight years, and it could be the third quantum leap in price and operating costs, both of which are hard to absorb for many small trucking companies," Kedzie says. "Time is definitely not on our side. So many people are asking for assistance and making their buying decisions now."

Clearing The Air

What the new rules say:

*Acceptable particulate matter (soot) emission for new heavy-duty engines will be set at 0.01 grams per brake-horsepower-hour. The current soot standard is 0.10 g/bhp-hr.

*Smog-causing nitrogen oxides emissions cannot exceed 0.2 g/bhp-hr and hydrocarbon emissions cannot exceed 0.14 g/bhp-hr. The current standard for NOx is 4 g/bhp-hr and the HC standard is 1.3 g/bhp-hr. These standards will be phased-in for diesel vehicles between 2007 and 2010.

*The sulfur content of diesel fuel used in highway vehicles would be limited to 15 parts per million beginning June 1, 2006. The current standard is capped at 500 ppm.

Benefits of EPA's proposal:

*As a result of EPA's proposal, each new truck would be as much as 90 percent cleaner than today's trucks.

*A reduction in emissions of smog-causing nitrogen oxides by 2.8 million tons each year will be achieved when the program is fully implemented in 2030. Emissions of soot would be reduced by 110,000 tons each year.

*A significant reduction'almost 33,000 tons each year'of toxic air pollutants (such as benzene), many of which are known human carcinogens.

*The proposal is equivalent to removing the pollution created by 13 million trucks today.