Price Tag Challenge

Everyone knew it was coming, and industry representatives worked on Congress to get some sort of financial incentive that would make it easier for carriers to stick to their normal purchasing cycle rather than pre-buy 2006 engines. For a variety of reasons, that campaign did not bear fruit, and now carriers and truck makers are gearing up to take their case back to Capitol Hill in hopes of slipping the next punch: the Environmental Protection Agency's 2010 diesel emission standard.

It will not be easy. The difficulties that caused the last effort to stumble are still in place: The price tag is enormous, probably more than $1 billion; the politics are byzantine; and the issue is complex and hard to sell. And now negotiations have to be undertaken while Congress is consumed by debate over the war in Iraq and positioning for a presidential election year.

On the plus side in the argument, the industry's experience with the 2007 engines demonstrates a real problem. Freightliner President Chris Patterson points out that the pre-buy countered clean air objectives by adding older engines, rather than new, cleaner engines, to the national fleet. Further, he says, the benefits of cleaner air are distributed across the country, but the costs are borne by truck manufacturers, their suppliers, dealers, distributors and employees. Manufacturers have been forced to lay off workers as a consequence of the drop in sales this year.

Incentives for 2010 are one of the American Trucking Associations' top priorities, said Senior Vice President Timothy Lynch. ATA is a member of an informal coalition including the Truck Manufacturers Association and the Engine Manufacturers Association, as well as individual truck manufacturers, that is organizing the effort.

The idea does have a champion. Sen. Max Baucus, D-Mont., has told ATA that he supports creation of an incentive, and as chairman of the Senate Finance Committee, he is in a position to make it happen.

"The challenge," Lynch said, "is the price tag."

He was referring not just to the bottom line but to the addition above the line and to the rules of the federal budget game.

When you go to Capitol Hill for financial relief, the first question is, how much will it cost?

The logical place to start building a number is to ask carriers what it would take to make them stick to their normal purchasing cycle. ATA is working on that, but it is not an easy calculation. Carriers are hard-pressed to name a figure when they don't know what the truck is going to cost. And manufacturers that are striving in an intensely competitive market are reluctant to declare their numbers. Then there are the carriers who will not be enticed by any sum, because they simply don't want to take a chance on the new technology.

"Until we can answer (this) question, we really can't answer the question as to what is the financial hit," Lynch said.

Allen Schaeffer, executive director of the Diesel Technology Forum, noted that the requirements of the 2010 standard may make this campaign even more challenging than the one for 2007. If engine manufacturers adopt selective catalytic reduction as the way to reduce NOx emissions, the industry will have to build a new fueling infrastructure – another cost factor that will be hard to compute. DTF was active in the 2007 negotiations and will participate in the 2010 effort when it gets up to speed, Schaeffer said.

The number that surfaced during the last effort was $1 billion plus.

"This is real money, not trivial in the scheme of things in the (federal) budget," Schaeffer said.

And, as Bob Clarke, president of the Truck Manufacturers Association, pointed out, "The bigger the number, the higher the hill to climb to make it a reality."

The second question asked, when you go knocking for money on Capitol Hill, is, how are you going to pay for it?

When the Democrats claimed control of Congress after the last election, they instituted "pay-go" discipline: Expenditures have to be replaced while they are being spent. Typically the offset is scrounged from programs or benefits that have been killed.

Lynch offered the example of legislation that would take away a $12 billion tax benefit from the oil and gas industry. That bill has not passed and probably would be vetoed if it did pass, Lynch said.

"There aren't a lot of those (opportunities)," he said. Plus, he added, practically every interest group in town is looking for the same thing.

One suggestion for an incentive has been to lower, or even kill, the 12 percent excise tax on truck equipment. The problem with that approach is that it takes money out of the Highway Trust Fund – money that's needed to keep the fund in balance and to help pay for highway improvements to reduce congestion. And the funds would have to be replaced by raising the diesel fuel tax – an issue that will be at the center of the debate in the 2009 reauthorization of the federal highway program.

Lynch and others involved in this effort say that truck manufacturers have a compelling argument when they point out that the buy-bust cycle is economically harmful – the loss of business and jobs radiates outward, creating problems for many businesses.

Unfortunately, however, the federal budget process does not function on a dynamic scoring model, Lynch said. "Those kinds of arguments do not get factored into the scoring."

EPA is taking a big-picture view on the issue, according to one source. The agency figures that carriers eventually will have to buy the new trucks, so the environmental benefits might be delayed, but they will come.

The process for putting the campaign together is just starting to get under way. "It really hasn't gone beyond the information-gathering and talking stages at this point," said Joe Suchecki, spokesman for the Engine Manufacturers Association.

Most involved in the process agree that the ideal time to have a 2010 incentive in place would be next January. There are a couple of tax measures due out of Congress this year that could provide a vehicle, but most also agree that this would be a tight schedule.