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Electrification, consolidation top HD aftermarket concerns

Jan. 26, 2021
During the Heavy Duty Aftermarket Dialogue, leaders from Navistar and FleetPride spoke on the challenges of an electric-centric parts supply chain.

The 2021 Heavy Duty Aftermarket Dialogue looked markedly different than in the past, as the day-long conference put on by the Heavy Duty Manufacturers Association (HDMA) that kicks off Heavy Duty Aftermarket Week was virtual this year. Prior to economic outlooks by co-sponsor MacKay & Company and panels populated by HDMA members, the event kicked off with a deep dive into the most pressing issues that will define the heavy-duty supply chain in the decade to come.

Titled “The Real World View,” the opening discussion comprised Friedrich Baumann, president of Navistar sales, marketing and aftersales, on the manufacturer side, and FleetPride CEO Al Dragone to represent the independent supplier’s perspective. Chris Patterson, the retired Daimler Trucks North America CEO, moderated the brisk foray into the what’s really driving manufacturer and aftermarket decisions in the coming years.

Unsurprisingly, electrification and how it will disrupt the status quo dominated the talk, though how fast it is approaching may prove a shock to some.

“It's coming faster at us than we anticipated two or three years ago,” Baumann said. “There's a lot of momentum right now in the marketplace, a lot of customer interest.”

He noted Navistar’s market-leading IC Bus business and its medium-duty segment, as well as the last-mile segment (for which Navistar does not provide a solution) are ahead of the heavy-duty side in scaling battery-electric vehicles, due to the range demands the technology cannot meet for Class 8.

“I would not be surprised that in seven to 10 years from now, we have 30% electrification in the medium-duty and bus [segments],” Baumann said.

Once Traton’s acquisition of Navistar is complete, the conglomerate will be the world’s second largest commercial vehicle business, and the International brand will have access to the same electric innovations and efficiencies as Scania and MAN.

Battery range and weight will be the leading competitive factors for electric trucks, Baumann said.

Dragone agreed that the speed of innovation is mounting.

“In 2018, it looked like only 5% of the market would be in a significant electrification position by 2030,” Dragone said, citing a study done for FleetPride by Bain. “It's accelerating faster than it was in 2018. And I certainly think last mile and medium duty are going to be impacted much quicker than heavy duty.”

That’s not to say Class 8 fleets should ignore the trend completely.

“It is coming; it will happen,” Dragone said of heavy-duty electrification. “But the average age of a Class 8 vehicle in the United States is 12.2 years old, and so we look at this as a long-term situation and not a short term.”

Will swapping the industry-first mentality of the Trump administration for the climate change-focused agenda of the Biden administration heat up the demand for heavy-duty electric parts?

“The change in the administration really isn't going to do anything from an aftermarket perspective,” Dragone said.

Generally, the industry believes under-development fuel cell technology will act as a range extender for heavy-duty applications. Navistar and Cummins are working on a fuel cell electric truck that could exceed 300 miles per hydrogen fuel up. That project is being aided by $7 million in grant money provided to Cummins by the U.S. Department of Energy.

There will need to be more where that came from to jump start commercial BEVs, as one of the limiting factors buyers must contend with is the “sticker shock,” Baumann said.

“If you think about our customers, making decisions along total cost of ownership, there is no ‘break-even’ in the foreseeable future; therefore, government incentives will be critical in order to drive adoption of that technology, even in the piloting and demonstrating phase,” he explained.

Navistar sees this as the reality for the next two or three years. The change will come incrementally, as Baumann also projected diesel technology will still be around 15 to 20 years from now.

One interesting side note Baumann teased was the consumer and commercial vehicle industries’ inevitable “allocation fight” for federal money. That there will be electrification incentives is a foregone conclusion, as President Joe Biden had made sustainable infrastructure a big part of his platform, while Vice President Kamala Harris co-sponsored the Green New Deal resolution that wilted on the Senate vine two years ago. As Baumann hints, cars and trucks will be at odds on who gets how much.

Supply side challenges

Assuming the government, fleet customers, and OEMs are all in lockstep marching ahead toward the electrification revolution, there are rather large, rather expensive challenges to overcome.

“Parts distribution centers (PDCs) are not yet set up to really handle battery or cell technology,” Baumann said. “So we need to increase and invest in infrastructure to even handle that type of material.

“The real challenge is that we are now starting to talk about handling hazardous material within PDCs, and as of today, we are not fully prepared for that,” he added.

For FleetPride, which owns 285 branches, five distribution centers, and represents 4% of the independent supplier market, this is not yet an issue. As previously stated, electrification in general is not top-of-mind yet. But it does portend a major shakeup as electrification increases.

Along the need to invest in infrastructure changes, smaller suppliers and dealers will also see less business coming in overall, as the fewer moving parts in electric vehicles will require less time in the shop. No longer will customers come in for a new diesel particulate filter or other internal combustion engine component, which, in itself, is a major upheaval to the current parts supply chain.

Baumann also warned that considering the high level of integration of diesel trucks has provided challenges, which will only increase and require even more investment as more independent vendors provide electric parts that all need to work in unison.

“It's a joint responsibility for the independents and [the OEMs] to make sure that whatever is being done to the vehicle doesn’t have any additional impacts on the further operation,” Baumann said.

Next is training technicians to evolve from diesel experts to masters of mechatronics.

“There's a lot of training and certification required for the techs,” Baumann said.

He pointed out that this exacerbates the current issue with electric components, where techs don’t always wield multimeters with the same acumen as an impact wrench. At times, they even replace parts pell-mell.

For instance, Baumann cited a Minnesota-based electronics remanufacturing business DTNA had acquired when he was senior vice president of DTNA's aftermarket division.

“Even at that time, and that goes back four years now, 50% of the parts that were coming back to remanufacturing, there was no failure found,” Baumann explained.

This also comes at a time when finding able bodies to work in the shop is tough enough (harder still with COVID-19), and independent dealers with a handful of stores will be asked to compete with those with far larger training budgets and omnichannel capabilities, such as e-commerce sites to easily order parts.

Baumann emphasized that even to reach today's emission levels, "just think about the investments that are required to get your techs trained to invest into diagnostic technology to stay up to speed."

At some point, these mom-and-pop shops will get swallowed up.

“There are some things that are creating environments where people are willing to fold their companies into FleetPride or another acquiring company," Dragone pointed out.

Dragone sees this as an advantage for the customer due to “the consolidation in the synergies that derive from that.” Even for the successful “big fish” in the independent pond, the transition will be one wrought with pain and risk, all for the sake of survival.

“What we're doing is we're leading with our chin right now,” Dragone said. “Some of the things that we're going to roll out in 2021 will be unique in the industry and the heavy-duty world. But the fact of the matter is, we're not doing it because there's a huge demand there today. We're doing it because, like a lot of industries, that is where the world is evolving to.”

About the Author

John Hitch | Editor

John Hitch, based out of Cleveland, Ohio, is the editor of Fleet Maintenance, a B2B magazine that addresses the service needs for all commercial vehicle makes and models (Classes 1-8), ranging from shop management strategies to the latest tools to enhance uptime.

He previously wrote about equipment and fleet operations and management for FleetOwner, and prior to that, manufacturing and advanced technology for IndustryWeek and New Equipment Digest. He is an award-winning journalist and former sonar technician aboard a nuclear-powered submarine.

For tips, questions or comments, email [email protected].

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