Fuel-Efficiency Standards Likely to be a 'Non-Event' for Truck Manufacturers

But the outlook for the commercial-vehicle industry is murky, analyst says.

The Obama administration's new fuel-efficiency and emissions standards for commercial vehicles likely will be "a non-event" for truck and bus manufacturers, an industry analyst says.

"I don't see the CAFE standards as an impediment to demand," said Kenny Vieth, president and senior analyst for Columbus, Ind.-based Americas Commercial Transportation (ACT) Research Co.

When the new standards kick in, the cost of a Class 8 semi truck is projected to go up by about $6,000, Vieth said.

But long-haul operators will make up that $6,000 in fuel-cost savings in about one year, he explained. They'll continue to reap additional payback in subsequent years.

"So it's not something that's going to cause truckers to try to avoid the pain, because the higher cost comes with a fairly significant benefit," Vieth told IndustryWeek.

The standards, which will phase in starting with model-year 2014 vehicles, will cost the industry about $50 billion to implement, according to an EPA and NHTSA estimate.

The agencies estimate that commercial-vehicle owners will save $50 billion over the lifetimes of their model-year 2014-2018 vehicles.

Compared with previous EPA emissions standards for model-year 2007 trucks, the new standards are an easy sell, Vieth asserted.

The 2007 standards drove up the price of a Class 8 semi truck by about $8,000, while mandating truck technology that delivered a 3% drop in fuel economy, according to Vieth.

"And so in 2005 and 2006, which were very good years for trucking, truckers just bought trucks like crazy to avoid, at least initially, the EPA's 2007 mandate because the trucks were going to cost more and get worse fuel economy," Vieth recalled.

However, the new standards, jointly promulgated by the EPA and NHTSA, likely won't cause any disruption in demand.

"In this case, you have a very short window to payback," Vieth said. "The truck is still going to cost more, but there's a very clear benefit for buying that new truck."

Industry Buy-In

The Obama administration noted that manufacturers supported the effort to create the new standards for medium- and heavy-duty vehicles, and worked with EPA and NHTSA officials to develop the final rule.

When the administration unveiled the new standards on Aug. 9, Cummins Inc. was among the manufacturers affirming their support.

"The agencies led an open process, and Cummins collaborated with other engine and vehicle manufacturers, technology suppliers, fleets and environmental organizations to provide input," the Columbus, Ind.-based engine manufacturer said in a news release.

"The result is a workable regulatory structure that accommodates the diverse needs of the commercial-vehicle sector."

The company said its North American on-highway engines will comply with the new emissions and fuel-efficiency standards in 2013 -- one year before the standards begin to phase in.

Warrenville, Ill.-based Navistar International Corp. said the new rule could be a benchmark for commercial-vehicle emissions and fuel-efficiency standards throughout the world.

"Navistar commends the Environmental Protection Agency and the National Highway Traffic Safety Administration for developing one single national standard for GHG and fuel efficiency for medium- and heavy-duty engines and trucks," Navistar Chairman Daniel Ustian said in a news release.

Whereas it was hard for anyone to get excited about the EPA 2007 emissions rule, Vieth added, "I think the industry is very much behind" the new standards.

Industry's Outlook Uncertain

Up until the past month or two, the commercial-vehicle industry had been chugging along, with the biggest constraint being the ability of truck and bus manufacturers to keep up with surging demand.

On Aug. 16, however, ACT Research scaled back its projections for sales of Class 8 vehicles in 2011 and 2012, citing indications that the economy might be stalling.

"Even though long-term demand factors continue to be solid, the economic pressures in the short and intermediate terms cannot be overlooked," ACT Chief Economist Sam Kahan said in a news release.

Given all the economic uncertainty right now, coming up with a forecast for heavy- and medium-duty trucks is a vexing task, Vieth said.

"If I look at the heavy-truck market, the fleet is very old, truckers are making good money and used-truck prices are very high," Vieth told IndustryWeek. "These are elements that we would normally associate with very strong demand.

"And certainly over the past year, that's exactly what we've seen."

But if economic growth sputters, Vieth wonders how that will affect trucker profitability.

"The fundamental question is how fast is the economy going to grow, because economic growth equals freight."

The outlook for medium-duty vehicles is even more uncertain, Vieth added, because two key drivers of demand -- residential construction and government spending -- "are very soft right now."

A pullback in consumer spending would further crimp medium-duty demand.

"If consumers aren't spending, then they aren't buying the stuff that gets delivered in medium-duty vehicles to their houses," Vieth said. "So that's certainly a concern."

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