Show Me the MONEY!

Industry angry over use of Highway Trust Fund to reach zero-deficit goalPresident Clinton's budget proposal, the first balanced budget in 30 years, had met with applause from most Americans, who were focusing on the magic number zero as the deficit. As normally happens, however, the budget starts to look less inviting to many industry groups and even some private individuals as they peer more closely

Industry angry over use of Highway Trust Fund to reach zero-deficit goal

President Clinton's budget proposal, the first balanced budget in 30 years, had met with applause from most Americans, who were focusing on the magic number zero as the deficit. As normally happens, however, the budget starts to look less inviting to many industry groups and even some private individuals as they peer more closely at the small print.

This year is no exception, as the fiscal year 1999 budget proposal has begun taking hits from trucking for its treatment of the Highway Trust Fund.

Established by the Highway Revenue Act of 1956 as a way to pay for highway programs, especially the Interstate Highway System, the Trust Fund is expected to rise from $22 billion in October to $77 billion by September 2003. Despite this increase, proposed spending directly for highway construction and maintenance is expected to drop from the current amount of $23.3 billion to $22.7 billion next year.

As the Trust Fund has grown over the years, a portion has gone to public transit programs, another for highways, and still another portion for the general fund. Although critics are angry over a proposal that about $600 million is earmarked for Amtrak subsidies, the general fund allocation is what really angers those in the trucking industry.

No fair Budget detractors say that putting money in the general fund masks the national deficit on the backs of the motoring public -- both industry and individuals -- and this was not the intention of the Trust Fund originators. This is particularly egregious, they contend, because the Federal Highway Administration has noted in recent reports that while the state of the nation's highways has improved, $300 billion in improvements are still necessary.

"This budget is a retreat to prior years," says Ray Chamberlin, vp-freight policy at the American Trucking Assns. "The government is banking our dollars for other purposes. Not for highways."

Budget opponents find the way in which President Clinton included the Trust Fund within the budget proposal to be particularly vexing. Instead of clearly showing the Highway Trust Fund's contribution to the overall budget, it is included within a newly established line item dubbed "Trust Fund for America," which comprises a Research Fund, an Environmental Fund, and a Transportation Fund. The funds total $75.5 billion.

Fun with funds Opponents argue that melding different items into one fund makes it more difficult to see how much money is collected and where it is going. They charge that this new accounting arrangement makes it easier for the Administration to spend Highway Trust Fund monies on non-highway programs without public scrutiny.

William Fay, president and CEO of the American Highways Users Alliance, cites DOT statistics showing that about 30% of highway fatalities involve problems with road designs, as well as poor road maintenance. This proves, he says, that the trust fund money needs to be spent on highways. As for Amtrak, Fay notes that they are the big winners in this budget proposal. "If Amtrak subsidies led to increased ridership and that reduced traffic congestion, we would be all for it; but it doesn't."

He and others are asking Congress to consider the bill "dead on arrival." While the budget is by no means DOA, sections of it are in for a rough ride. The National Governors Assn., for instance, is pushing for an end to use of the trust fund as a deficit stopper. Rather, they want to see it used for transportation, including highways and mass transit.

To further complicate the budget matter, Congress must take up the issue of the Intermodal Surface Transportation Efficiency Act (ISTEA) reauthorization before the extension passed last year is up in May. This gives budget opponents the opportunity to move transportation funding out of the Administration's budget and into the hands of Congress, where they may have a better chance of getting what they want. Budget supporters, however, will fight to keep the transportation funding within the President's budget.

Neither side wants to anger the American public by dismissing an already-promised balanced budget.

However, substantial changes are ahead for the transportation portion of the President's proposed budget. So, trucking and highway interests are bracing themselves for their biggest budget and legislative battle in recent years.

OSHA rules challenged Responding to an emergency request made by a business coalition, including ATA, a federal court temporarily suspended OSHA's Cooperative Compliance Program last month. The agency had asked businesses to participate in a "voluntary" compliance program or face the threat of inspection.

Holding pattern Giving some guidance to fleets about growing demands for satellite-transmitted data, a federal court has upheld an FHWA subpoena issued to Arctic Express demanding all Qualcomm data retained by the company. The ruling requires the fleet to produce only those reports that it has or routinely keeps, but does not require the compilation of any additional reports.

Stormwater The EPA has proposed rules giving smaller municipalities authority to regulate public, private, and industrial stormwater discharges within their jurisdictions, raising the specter of a patchwork of regulations. However, facilities that can prove their activities are not exposed to stormwater or runoff can exempt themselves from the permit program. Comments are due April 9.

Stale TEA Although Congress is staring at a March 31 deadline to pass the highway reauthorization bill (ISTEA), it is unlikely any measure will be brought up until Congress and the Administration agree to a budget resolution. This likely will push the bill into the late spring, a prospect under which some states will run out of money.

Raise you a penny The IRS has raised the national per-mile driving rate by one penny, up to 32.5 cents. That represents the amount taxpayers can deduct for automobile expenses on '98 tax returns for business miles driven. The IRS cited increased insurance costs, taxes, and vehicle prices as reasons behind the increase.

Engine NOx levels too high under highway operating conditions

In separate letters to President Clinton and the Environmental Protection Agency, an environmental watchdog group and an association of Northeastern state governments have charged that electronically controlled fuel systems are being used to circumvent federal emissions standards for heavy-duty diesels. At presstime, most of the country's engine makers acknowledged that they were conducting individual negotiations with EPA, as well as participating in collective talks with the Engine Manufacturers Assn. The Justice Dept. was also investigating possible violations of the federal Clean Air Act.

At issue is the EPA-mandated testing procedure used to certify that all heavy-duty diesels currently sold in the U.S. meet federal emissions standards. It appears that while the test cycle accurately predicts engine emissions under urban stop-and-go conditions, the engines actually produce significantly higher nitrogen oxides (NOx) under normal highway operating conditions.

The Natural Resources Defense Council said in its letter to Clinton that manufacturers have used the sophisticated electronic fuel controls to minimize emissions under test-cycle conditions, and "programmed their engines to modify their injection timing to increase fuel economy under normal highway driving conditions -- at the expense of significantly higher NOx emissions." It is illegal under the Clean Air Act and EPA regulations to produce engines with "devices" intentionally designed to bypass or "defeat" emissions controls.

In their defense, engine makers point out that they must use EPA tests to certify their engines and that they are in full compliance with all emissions regulations. All say they are cooperating with EPA, but declined to talk about ongoing discussions, citing agreements with the agency to keep the substance of those talks confidential until an agreement is reached. (For more details, see "Point of Departure," p. 4.)

Four of the nation's largest LTL trucking companies agreed to a five-year national agreement that boosts pay for 136,000 Teamster drivers by 7.6%, a $750 bonus the first year and wage increases of $1.40 an hour over the next four years for senior drivers. Top wages will be $19.86 an hour.

The new National Master Freight Agreement includes pension benefits similar to those won by the Teamsters after its two-week strike against United Parcel Service last August.

The agreement covers drivers at Roadway Express Inc., Yellow Freight System, Consolidated Freightways Corp., and ABF Freight System Inc., which was represented by The Motor Freight Carriers Assn. (MFCA). These companies employ about 75% of the Teamsters at all trucking companies.

The current agreement will expire March 31. If the pact is ratified by Teamster members, the industry will not suffer a damaging strike like that staged in 1994. As a consequence of that strike, the LTLs lost more than $200 million in business to non-unionized companies through 1996.

According to the agreement, Teamsters will be able to retire after 30 years of service with a $3,000 monthly pension, and after 25 years with a $2,000 monthly pension. The union also won a prohibition against trucking companies moving work or terminals to Mexico.

Two MFCA members, APA Transport Corp. and New Penn Motor Express Inc., have decided to negotiate separately with the Teamsters, but will use the NMFA as a model for their agreement.

Truck manufacturers and suppliers warned against becoming prisoners of own success at HDMA Heavy Duty Dialogue

The heady times being enjoyed by today's truck manufacturers and component suppliers cover up numerous sins -- sins that must be atoned for if truck builders are to live up to ever-higher customer expectations.

"Our customers live in a 24-hour world of hyper-competition, paper-thin margins, and brutal employee turnover," Marc Gustafson, president and CEO of Volvo Trucks North America, told attendees of the Heavy Duty Manufacturers Assn. meeting last month. "Interestingly, as a group they are faring somewhat better than those of us who serve them. Our customers have successfully harnessed innovation and new business practices to realize real gains in productivity."

Fleets are looking for more. That challenge is one the manufacturing community is ill prepared for, according to the Volvo executive. "Our industry is suffering from sheet metal myopia."

Instead of focusing on the truck, Gustafson argued that industry suppliers must help customers move freight more effectively. To achieve this vision, Gustafson outlined a five-point plan:

1. Absolute reliability. Customers are demanding maximum uptime. "This is not a new story," says Gustafson, "but the way they're doing it is. Customers are working to reduce the average age of their trucks."

Why? "The answer is to ensure sufficient uptime because trucks aren't reliable enough," he said. "We've got an undertaker's mentality in this industry. The irony is, we're generating profit from quality deficiencies."

"This industry has a long way to go in meeting end users expectations of quality and reliability," agreed Don DeFosset, president of Navistar International Transportation Corp.'s truck group. But things are moving in the right direction. "Parts and component quality is improving, smart systems and increased technology allow for extended service intervals and less need for repairs."

As the industry works towards new levels of reliability and expanded use of sophisticated technology, products are demanding more focus on educational training and product support, said Prakash Mulchandani, president of Meritor Automotive's Heavy Vehicle Systems. At the same time, finding people qualified to work on this new technology is the challenge. "The need for technicians is expected to grow 17% over the next 10 years," he said.

The divergent trends of a dearth of technical talent combined with more sophisticated equipment will continue to drive more fleets out of maintenance. Cummins Engine Co. estimates that half of the fleets conduct maintenance in-house, a figure that will drop by seven points over the nextfive years, according to Guff Muench, vp of distribution for customer support an d aftermarket.

2. New operating model. OEMs must broaden their focus beyond building trucks and delve into how products are acquired and disposed, Gustafson said. "We will become the experts in asset management over the entire ownership cycle," he continued. "Since our customers get paid by the mile, wouldn't it be logical for them to pay for our products in the same way? When customers start paying for uptime, warranties, depreciation, and resale value all become irrelevant."

3. Smarter customer interface. Winning OEM's will combine their unique strengths with those of their independent dealers to create a seamless and consistent customer support network.

New product development will have to be integrated more smoothly with suppliers in the future, said Edward B. Caudill, vp and general manager of Kenworth Truck Co. "We must co-define the product from the outset before we race off into the future," he said. "We need to design with the total system in mind, rather than as individual components."

4. Continuous innovation in product and service. Market leaders will become proficient at incorporating new technology into products quickly.

Technology is a critical factor in providing that customer vision, added Joseph Magliochetti, president and CEO of Dana Corp. "I believe that those in our industry who are slow to embrace new technology are putting their operations and people at tremendous risk."

5. Brand credibility. Gustafson likened a brand to a promise made by the service provider regarding such things as content, quality, and consistency. "It is the essence of a company's vision summarized in a single word," he told attendees. "To the extent that the needs of a customer conform to that vision, a contract is formed."

Today, that contract suffers from a collective lack of vision and recycled innovation. In the future, customers will choose brands that represent complete business solutions. "The real winners will be the companies that foster renewed trust in their identities through the constant reinforcement of a clearly defined vision," said Gustafson.

American Isuzu Motors Inc. (AIMI) is initiating a trio of moves aimed at increasing its competitive stance. The company has embarked on a parts price-reduction campaign, is offering an extended warranty program, and is about to launch a captive finance arm as a means of providing capital backing for its dealer network and truck customers.

According to Todd Bloom, vp-commercial vehicle business development and marketing, the reduction in parts prices makes Isuzu trucks less costly to maintain.

The Isuzu Truck Owner Protection Plan (ITOP) offers buyers of new N- and F-Series trucks an opportunity to purchase additional fourth- and fifth-year warranty coverage on their vehicles.

In announcing the formation of Isuzu Motors Acceptance Corp., its senior vp and general manager, Elliot J. Cody, says that the new finance arm will concentrate on developing financing and leasing programs for truck customers, as well as handling wholesale inventory for Isuzu dealers. It is scheduled to begin operations on April 1.

Kenworth Truck Co. says it has restructured its product marketing to place a stronger focus on what it calls key customer-market segments.

Four market-segment managers, including three new staff additions, have been appointed to handle product planning and other marketing activities related to their assigned business areas.

The new segments and their managers are: * Truckload and LTL: Paul Penberthy * Leasing and private fleets: John Sheldon * Vocational and off-highway: Brian Lindgren * Owner-operator: Julie Gallaudet

In addition, product development manager Dan Kieffer is responsible for new-product development, the KW Easy-Spec program, and the OEM's option-management group.

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