An uptick in new truck orders is being driven by the economy, not pre-buying to avoid tougher emissions standards, says Steve Keate, Truck Group president, International Truck & Engine Corp.
“When you look at the time line, these are not orders being slotted in the August/September time frame,” he told the truck trade press at the company’s monthly teleconference. “These are orders being slotted near term, which tells me this is demand strengthened by the economy and not a pre-buy.”
Keate also indicated that fears regarding the new engines, which must meet stricter emissions rules starting October 1, could be exaggerated. Engine and truck manufacturers will have to recoup huge investments required for the changes, so prices will likely go up $3,000 to $5,000 per unit. International, in fact, has already announced price increases to its dealers.
Fuel economy may deteriorate 1-5%, but not for all customers. “People need to keep in mind that many customers are operating older engines,” he noted. “The fuel economy of a new Cummins ISX versus an old ISX might have deteriorated 1-5%, but there will be no impact if you’re going from an N14 to a new ISX.”
Keate says his compeny doesn't expect any significant changes in reliability and durability and, at least regarding International trucks, performance and driveability may even be better. The company’s new 7000 and 8000 series trucks were designed around the new engines so, working with the engine makers, they were able to build in some performance enhancements.
“I think our products in the market after October will be superior,” he said. “We like to talk about all the negatives, but there are positives as well.”
Still, International is making good its promise to “manage production” in order to discourage pre-buying. The company has gone from 110 to about 120 trucks per day and is targeting 150 a day by August, but they’ll stop there. “We’re not going to add fixed costs to meet a near-term spike in demand,” Keate said.
Additionally, the company is in the processing of instituting a “pretty significant cancellation penalty” that will apply to dealers and customers. “We need to do that so we can finalize production rates and get them to the engine makers so they can manage their transition from the old to the new,” he explained.
Keate was equally bullish about supplier integration. International has long-term commitments with Caterpillar and Cummins, but won’t offer Detroit Diesel after October. That decision, he admitted, may cost them some loyal Detroit Diesel customers, “but on balance, we’ll win more than we lose.”
Fewer engine variations gave International engineers more opportunity to work on other elements of the chassis, such as ride and handling, he said. Dealing with two manufacturers versus three has made it easier to forge closer working relationships. Already, he said, Cummins and International sales and marketing organizations are working as teams. Integration also reduces design and inventory costs. One example: Keate said that after October, the number of cooling packages in the 9000i series will drop from three to one.
International’s contracts with Cummins and Caterpillar extend to the 2006/2007 model year, when another new set of emissions standards kicks in. He said they have no plans to go from two engine suppliers to one, but the investment required to make that change could mean a lot of “soul searching” among all truck and engine manufacturers. “Given the level of investment required, we could see some rationalization in the big bore engine supply base,” he said.
