“Nobody buys a truck because he wants to buy a truck; he buys a truck because he needs to buy a truck,” said Martin Daum, president & CEO of Daimler Trucks, North America (DTNA), keynoting the 20th annual Heavy Duty Aftermarket Breakfast and Briefing, presented by the Heavy Duty Manufacturers Assn., during the Mid-America Trucking Show on Friday in Louisville.
“We think things are going up,” Daum told the packed room of trucking industry manufacturers and members of the media, noting that “everything at the end boils down to freight” and that GDP growth (which is trending upward between three and four %) automatically increases freight.
“There is a counter trend, however,” he added, “which we call transport efficiency.” The term, he explained, describes the trend toward smaller products and smaller packaging, which reduces freight volumes. Daum offered recorded music as one example, noting that big vinyl albums in cardboard sleeves gave way to much-smaller CDs, which are now being replaced by downloaded music, eliminating the physical product almost entirely.
In spite of that countervailing pressure, Daum said there appears to be a long-term, net freight growth trend of about one percent. “It is hard to tell if the long-term trend is stable or slightly upward,” he noted. “We think that it may be slightly upward, say about one percent.”
Concerning the cyclical nature of the trucking business, Daum focused on the root causes. “The trucking business is cyclical,” he noted. “You can always put off buying a truck for a while. You can delay maintenance for a while, but eventually you have to buy [trucks], and this is what creates cycles.”
Using a graph which displayed the industry’s shorter-term cycles dipping under and climbing above the long-term trend line, Daum explained that, “Everything you have above the trend line you will eventually have to pay for with a comparable dip under the trend line. The key to be a long-term player [in the industry] is the ability to manage the cycles.
“If a market goes down 50% and then up 50%, you are not where you started,” he said. “We are talking about 10% growth in 2010, but that is not actually [long-term] growth, just the avoidance of disaster.”
Put in terms of vehicle sales numbers, Daum sees NAFTA truck sales of about 200,000 Class 6-8 trucks in 2010. “I do not see more than a 10% increase,” he noted, citing some leading indicators as cause for optimism, including the fact that there are now more trucks back on the road again and that the North American fleet is aging and customers are acknowledging that as a problem. “We [DTNA] are sold out until the end of June,” he said, adding that “we should be seeing a 33 % increase in 2011.”
Daum also shared some of DTNA’s strategies for managing through the cycles and helping customers to do the same, including: product innovation, maintaining a flexible production footprint, strict control of costs, global leverage and expansion, a custom-tailored growth strategy for BRIC [Brazil, Russia, India, China] nations, and sourcing on a global scale. “We did not cut back on product innovation [during the recession],” Daum said. “You cut off your future if you cut off innovation.”
The most important factor driving truck innovation, he noted, is the need for greater fuel efficiency. “Fuel efficiency will become more and more important-- the most important—issue to our industry,” he said.” The rise of fuel prices is inevitable. It is expected to reach $3.89 in 2014 and we expect it will reach $5.00 per gallon in the future.”
Daum noted that customers need fuel savings from technology to offset these rises in fuel costs and that DTNA is working “very comprehensively to improve fuel efficiency” with both short- and longer-term initiatives. The future of the truck is really “fuel science,” he said. Any friction, any unnecessary movement in the truck has to be investigated for opportunities to improve efficiency.
“Only about 20 % of the energy from the engine is used to move the truck forward,” Daum explained. “The other 80 % is wasted as heat and in other ways. I see ten miles per gallon as possible. Not now, but it is possible.”
“To get to that it will take time,” he added.” We need things we don’t have today and it has to pay off, it has to make financial sense, but we have to invest today. We have to be prepared to help our customers when fuel is $5.00 per gallon.”
On the subject of production flexibility, Daum also delivered a clear message. “We need more flexibility in manufacturing in the U.S. and unions are not stepping up to that challenge,” he said. “If they don’t, more and more manufacturing will move to Mexico. We have to get a grip on our entitlement programs.”
Daum described the need to control costs like a “food chain.” He said “Our customers do not get more money for their services so we can’t get more. We have to get the waste out, to do things better than we did yesterday.”
One way DTNA is doing that is by globally leveraging and expanding DTNA’s intellectual assets. “We are pulling together worldwide intelligence to create products for three continents,” he noted, including a global heavy-duty engine platform, global SCR program, global hybrid program and global safety program.
Daum concluded his prepared remarks by thanking DTNA’s suppliers for the key role they play in achieving these goals and realizing benefits for customers. “We need you,” he told his audience. “We just assemble. As our valued and important partners, I want to thank you.”