It no doubt confirmed the fears of many in the industry when the first price increase for 2010-compliant trucks came across the wires.
Volvo Trucks North America (VTNA) remains the only OEM so far to unveil the 2010 surcharge for its heavy-duty trucks — revealing that its Class 8 models equipped with selective catalytic reduction (SCR) technology are going to increase by $9,600. That, however, is before the impact that surcharge has on truck-related taxes, along with the ongoing cost of refueling SCR-equipped trucks with diesel exhaust fluid (DEF), which is necessary to make the system work.
“By the time you add in the $9,600 extra per truck for SCR technology that Volvo is charging to the federal excise and sales taxes, you're looking at a $12,000 increase for a new 2010-compliant truck,” explains Kenny Vieth, partner and senior analyst with consulting firm ACT Research. “That's not going to make people rush out and buy a new truck.”
Yet don't expect the 2010-compliant trucks built by Navistar, the sole OEM that's forgoing the use of SCR in favor of advanced exhaust gas recirculation (EGR) technology, to be that much cheaper. In mid-June, Navistar revealed that the price for its diesel-powered school buses manufactured by its IC Bus subsidiary equipped with 2010-compliant advanced EGR engines would increase $6,000 per unit.
While the OEM hasn't revealed the surcharge for its medium- and heavy-duty products, it's a fair guess to expect it'll be more, perhaps significantly so, than school buses, since commercial trucks use larger displacement engines.
The question on the minds of most fleet operators remains pretty basic: Why does it cost so much more per truck to equip it to reduce emissions down to the required levels in 2010? What is all that money for? And, more importantly, if you were to remove all the extra hardware and software put on the vehicle to make it meet 2010 emissions standards, would the surcharge be eliminated?
BREAKING IT DOWN
Let's answer the last question first. Is the 2010 surcharge wrapped up entirely in the extra components added to the vehicle, be it a truck powered by advanced EGR or SCR? The answer, perhaps predictably, is no. Much of the surcharge actually relates to over a decade worth of investment — much of it still ongoing — by all the truck makers in research, design, development, and testing costs, alongside major upgrades to factories and laboratories required to produce super-clean diesel engines and the vehicles that operate using them.
“We've invested $150 million in our laboratories alone as we moved through each progressive stage of these emissions regulations,” says Ed Saxman, VTNA's drivetrain product manager. “Specifically for 2010, we needed all-new equipment in order to measure the almost microscopic amounts of regulated emissions coming out of the truck's exhaust system.”
By 2010, new diesel engines will be required to emit no more than 0.2 grams per brake horsepower-hour (g/bhp-hr) of oxides of nitrogen (NOx) and 0.14 g/bhp-hr of non-methane hydrocarbons (NMHC). Measuring such miniscule particles for certification under Environmental Protection Agency (EPA) guidelines required Volvo to build a scale three stories in height and anchored to the bedrock deep under its engine manufacturing plant in Hagerstown, MD, Saxman notes.
“When you are trying to measure something weighing two-tenths of a gram, merely stepping near the scale would upset the calibration,” he explains. “You are talking about measuring something that literally weighs next to nothing — and you must be precise about that measurement. It's an incredible undertaking.”
Then there are the onboard diagnostic (OBD) systems attached to each truck and engine that must precisely measure the emissions levels on an ongoing basis, again according to EPA regulations, to guarantee that commercial trucks remain in environmental compliance during their life cycle.
“A huge amount of that $9,600 is just for the OBD sensor array,” notes Saxman. “Developing a super-accurate sensor that is going to function and survive in the everyday trucking environment isn't easy. It makes trucks that much more complicated, but this is what it takes to be in compliance with these federally mandated regulations.”
The same burdens exist on the advanced EGR side of the fence as well, along with the costs for building and operating a slew of test trucks that, like their SCR-based counterparts, have accumulated millions of miles and thousands of hours on the road in a wide variety of operating conditions over the past year.
“Our field testing has lasted 18 months at this point. We started with 12 trucks and are up to a fleet of 60 now, [with] a few more to add as we go along,” says Tim Schick, director of business product strategy for Navistar's engine group. “Right now, about 20 of those test trucks are with customers, with 40 being operated by our own engineers.”
Test trucks are designed to “hit” a wide variety of different atmospheric and weather conditions as they accumulate mileage and time on U.S. roads, says Schick. Navistar sent trucks up into northern Minnesota over the past winter for cold-weather tests and is currently running vehicles in many desert locations, such as Arizona, to gather data on performance in dry, hot temperatures between 115 and 120 deg., while dropping into the Houston area to test under high heat and humidity conditions. Trucks are also operating at high altitudes, in places such as Colorado's Rocky Mountains, says Schick.
“In each case, extended operations in these locations are necessary to fine-tune how our advanced EGR system works — making sure we hit the right fuel economy and performance factors,” he explains. “Take high altitude, for example. We operated in Denver and found that while fuel economy and performance hit the expected targets under full load, they didn't under light loads. So we went back and did a lot more testing there to recalibrate our engines. It takes a lot of time and testing to make sure there are no gaps in performance.”
WHAT THE OTHERS SAY
Schick declined to elaborate on how all of that research and testing would impact the 2010 surcharge for Navistar's commercial products.
“Though advanced EGR doesn't have all the apparatus that SCR requires, there's still a lot of sophisticated technology involved — a high-pressure common rail fuel system, OBD sensors, advanced engine materials, etc.,” he says. “So we're still not in a position to discuss what the final cost of advanced EGR is going to be for our commercial trucks.”
“Completing the validation phase of our test engines is a major milestone, but our work isn't done yet. As with any new engine program, up until the day we build that first truck, we will continue to fine-tune our engines, make the necessary adjustments, test and validate to ensure our customers have the performance and reliability they expect,” explains Ramin Younessi, Navistar's group vp for product development and business strategy.
Mack Trucks, VTNA's brother company, is also not ready to discuss the surcharge for its 2010-compliant trucks. “We have more models than Volvo, in such markets as vocational and refuse, so we are still working out the cost,” says Kevin Flaherty, Mack's senior vp of sales. “But we will be in the ballpark of Volvo's number.”
Mark Lampert, senior vp of sales for Daimler Trucks North America (DTNA), also passed on a question to address his company's 2010 pricing back in February at the Technology & Maintenance Council's annual meeting. He noted then that DTNA was still three to four months away from releasing cost increases due to the addition of SCR.
“We're still finalizing the design of these engines,” Lampert said at the time. “Though I can tell you the engine's size will have an impact on that cost in terms of medium-duty versus heavy-duty engines.”
Part of the reluctance to discuss pricing on the SCR side of the fence stems from several design parameters that still continue to be tweaked heading into the final lap before 2010 mandates go live.
That includes such mundane items as the size and shape of the storage tanks for DEF, says Tony McQuary, senior director of strategic business planning for Peterbilt Motors Co., a subsidiary of Paccar. Despite the advantage companies such as VTNA, DTNA and Paccar (through its DAF subsidiary) gained from the initial development of SCR in Europe to meet emissions rules predating the U.S. regulations, those systems must be redesigned to meet the different operating requirements demanded of trucks on this side of the Atlantic.
“Europe's had a lot of experience with SCR technology to meet emissions standards and we'll be using it to meet 2010 rules here in the U.S.,” McQuary says. “The issue for us is adapting SCR to fit how trucks operate in the U.S. For example, the tanks holding the urea solution sprayed into the truck's exhaust stream to control NOx emissions is small in Europe, between five and 20 gals. We'll need a 25- to 40-gal. tank for trucks in North America because they operate over much longer distances.”
The SCR tank not only adds weight, but it takes up already limited real estate on today's Class 8 truck. This is an issue McQuary thinks will be addressed by sizing down the main diesel fuel tanks on Class 8 tractors. “You're looking at going from a 250-gal. tank down to 200 gals.,” he said.
Packaging is one of the major challenges to the cost issue. In DTNA's case, Detroit Diesel Co., the company's engine subsidiary, has created what it calls a “one-box” solution on the passenger side of a Class 8 truck cab, housing all the exhaust aftertreament components required to meet the 2010 emissions standards — diesel oxidation catalyst, diesel particulate filter and SCR system.
Rakesh Aneja, DDC's EPA 2010 program manager, says the “one-box” SCR package weighs approximately 380 lbs. in addition to the 23-gal. plastic DEF tank located under the driver's side of the truck cab, which weighs 200 lbs. when completely filled.
However, DTNA's gm of marketing Michael Jackson pointed out that DDC's solution will actually save truck owners money over time as the technology should improve the average Class 8 truck's fuel economy a net 3% over current 2007 engine models. This would reduce diesel fuel consumption per truck by roughly 800 gals. a year, balanced against the consumption of some 300 gals. of DEF annually.
Yet, at the end of the day, more than just the surcharge affects the sales forecast of 2010-compliant trucks, for as the U.S. and the world at large continue to suffer from a severe recession, the economic factors that might encourage truck sales, even in the face of additional costs, simply aren't there.
In its recently published North American Commercial Vehicle Outlook, ACT Research forecasts 2009 Class 8 retail sales will be 43% below 2008 levels and only recover about half of that decline in 2010, with medium-duty Class 5-7 retail sales projected to be down 26% for 2009 and grow only 11% next year, according to ACT's Kenny Vieth.
“I really don't see how sales can get better any quicker,” Vieth says. “According to our modeling, freight volumes are down 10% to 11% year-over-year from 2008 to 2009. Anecdotally, we've also heard there have been a lot of renegotiated [freight] contracts this season, with pricing being set at a lower base. Fleets are under a lot of monetary pressure right now.”