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New Emissions Rules Promise Disruption in Truck Sales

February 22, 2006

The new stringent emissions standards set to take effect January 1, 2007 will result in a boom then bust period for truck sales, according to a February 19 report in the Chicago Tribune. The regulatory changes, mandating a 90 percent reduction in the emissions of soot particles from truck exhaust, can be compared to the removal of lead from gasoline in the 1970s, the EPA said. Margo Oge, head of the EPA's Office of Transportation and Air Quality, said in the Tribune report that the cleaner truck engines will prevent 8,000 premature deaths a year.This good news for the environment, however, promises to create a near-term disruption for engine and truck manufacturers, component suppliers, trucking companies and petroleum refiners.Fleets are worried about higher prices—as much as $7,000 to $10,000 more for a heavy-duty truck—and reduced fuel economy. Fleets have already begun a “prebuy” to avoid those costs. Last month, for example, orders for Class 8 trucks in North America significantly topped forecasts and hit an all-time record of 43,100. Experts say that tally was significantly inflated by prebuy orders that normally would have been placed next year.ACT Research truck industry analyst Kenny Vieth projects that the number of heavy-duty trucks built in North America will total 358,000 in 2006, then crash 42 percent, to 207,000.Wall Street is also projecting a rosy 2006, although some anticipate a less dramatic decline.Analysts’ forecasts predict diesel engine-maker Cummins Inc. will see 2006 earnings rise 14 percent from last year's record level, then drop 31 percent in 2007.The prebuy may be moderated, however. In contrast to the weak conditions that prevailed in 2002, the most recent pre-buy due to emissions regulations, heavy-truck producers are working at close to maximum capacity. By mid-2006, a number of experts predict, there will be no more production slots to build additional trucks this year.
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