Truck Sales Surging as 2007 Deadline Approaches

4/21/06 Truck Sales Surging As 2007 Deadline Approaches

The good news is that truck sales for 2006 appear to be heading for record levels, as many in the industry had been predicting. The bad news is that the current sales boom is likely to come to a grinding halt when the 2007 models make their debut.

Both the 2006 sales boom and the probable 2007 sales bust can be attributed to the same reason – new Environmental Protection Agency, EPA, regulations regarding diesel fuel and truck emissions, that go into effect on Jan 1, 2007. These new regulations will impose significant costs on the trucking industry. Sticker prices for medium-duty trucks and school buses will rise $5000 - $6000, while those for vocational and Class 8 highway trucks will rise $5000 - $12,000. In addition the new ultra low sulfur diesel fuel, ULSD, required by the new trucks will cost between five and thirteen cents per gallon more than current diesel while yielding a 1% to 3% loss in miles per gallon.

It is the costs associated with the new EPA requirements that are propelling sales as motor carriers and large fleet operators seek to beat the 2007 price increases by purchasing 2006 models. In addition to saving money in the short term, purchasing now will make sense down the road. Large fleets generally use their vehicles for three to four years, which means that vehicles purchased in 2006 will be scheduled to be replaced in 2009, the year before yet another new EPA mandate (along with its increased costs) takes effect.

These new regulations are the second in a series of three major changes to truck emission standards imposed by the EPA. The first set of stricter standards, took effect in October 2002 and resulted in a sales surge as trucking companies sought to buy new equipment before the new standards and higher prices took effect. The 2002 surge was followed by a major decline in sales in 2003. Industry analysts expect the current 2006 sales boom to be followed by a 2007 sales slump similar to what occurred in 2003. And in 2010 an even stricter set of EPA mandates will go into effect, which analysts predict will cause a surge in 2009 sales followed by a crash in sales in 2010.

The new standards are intended primarily to reduce the nitrogen oxides and particulates that are released into the atmosphere by today’s diesel engines. The reductions of these pollutants will be substantial. Under the new standards, nitrogen oxides and fine particle soot will be reduced by 90%. The key to this reduction is the use of new ultra low sulfur diesel fuel, with 15 parts per million, ppm, sulfur content, compared to the current 500 ppm. This in turn allows for the use of new filter technology that can meet the particulate levels of the new standards.

The costs to the trucking industry, (and eventually to the consumer), of complying with the new mandates will be significant. In addition to the higher vehicle purchase price, more expensive diesel fuel, and reduced miles per gallon, the maintenance costs for the new trucks will be higher. Their engines will run substantially hotter, reducing service life and requiring new (and more expensive) oil formulations, as well as maintenance costs for the particulate filter system.

The EPA says the costs of the new regulations will be offset by a reduction in greenhouse gases, cleaner air, and a substantial reduction in health care costs for respiratory diseases associated with diesel exhaust. Once the current phase of the plan is fully implemented the EPA estimates that there will be a reduction of 2.6 million tons of nitrogen oxides emitted into the atmosphere each year. Fine-particle soot will be reduced by 110,000 tons per year.

According to EPA projections, the reductions in atmospheric pollutants will result in the annual prevention of 8300 premature deaths, 5500 cases of chronic bronchitis, and 17,600 cases of acute bronchitis attacks in children. EPA also estimates that the new regulations will prevent 1.5 million lost work days, 7100 hospital visits and 2400 asthma-related emergency room visits per year.

Looking down the road, 2010 will see the implementation of the third and most stringent phase of the new regulations. Engine manufacturers are working on new technologies to meet the 2010 standards. Motor carriers and fleet owners will again face higher costs for new trucks and new pollution control equipment. In addition there will be an entirely new enforcement element that the industry will have to contend with. The EPA is planning on implementing “mobile emissions testing” where EPA agents will pull trucks over on the highway and subject them to roadside testing of their emissions control systems.