Heavy truck buyers are waiting in the weeds for an economic recovery, and many fleet managers are holding back on new-truck purchases until business improves. They might not know that the federal Economic Stimulus Package contains substantial tax incentives for capital expenditures, including money spent on trucks. Buyers can expense up to $250,000 for up to $800,000 worth of equipment that qualifies under IRS Section 179, and expense it all this year. There are many details, which tax consultants should have, but the tax breaks make it a good time to buy.
Meanwhile, January 2010 ushers in even more stringent diesel-emissions limits, and that will likely result in even more expensive engines and trucks. The upcharges of $6,000 to $10,000 that customers saw in 2007 are likely to be repeated in '10, builders say. Of course, there are alternatives to buying new. A variety of used vocational trucks are always available, and there are glider kits.
Basically new trucks with used powertrains, gliders are gaining popularity among operators who want to avoid expensive EPA-'02 and '07 diesels, say the specialty builders who assemble them. Gliders are the only way to use “pre-emission” diesels in a new chassis, and recycling of other power-train components saves considerable money.
Fitzgerald Truck Parts, which sells glidered road tractors and dump trucks, reports that business is up 20 percent over last year. Indiana Phoenix, a manufacturer of front-discharge mixers, says 75 to 80 percent of its admittedly slow production is now of glidered trucks. Terex Advance, also a maker of front-discharge mixers, says 40 percent of its also-slow production is of gliders, and orders for them are up substantially over last year. Oshkosh also offers gliders.
Tommy Fitzgerald Jr., co-owner of Fitzgerald, says high fuel prices push owner-operators to look for more economical power units. The rebuilt 12.7-liter Detroit Series 60 engines his crews usually install produce substantially better mileage than models with exhaust-gas recirculation introduced in October 2002.
“EGR engines get 5 to 5 and a half miles a gallon, whereas ours get 6 to 7 and a half, depending on how you drive them,” Fitzgerald says. A newly glidered road tractor sells for about $95,000; a complete dump truck costs $98,000 to $105,000.
Fitzgerald offers Cummins N14s and Caterpillar C-15s as well as the Series 60s. For another $2,500 a buyer can get a three-year/300,000-mile warranty on a Detroit engine, which is completely rebuilt with new parts; only the block and crankshaft are used. Reman'd components usually carry a warranty from their manufacturers.
Indiana Phoenix president Joe Elkins says popularity of its glidered front-discharge mixer trucks has grown since the advent of the '07 diesels. Customers can send in major components for reuse or trade in worn-out trucks. Phoenix can also find “donor” trucks and components for so-called Certified and Super Gliders. Terex Advance offers similar products and sees much interest in the gliders due to the high cost of EPA '07 diesels, says Rob Turner, Midwest sales manager.
An assembled glider costs considerably less than a new truck — at least 25 percent less by federal regulation — and works just as well, say those in the business. And if done properly, it is not subject to the 12 percent federal excise tax on new trucks. To avoid the FET, the Internal Revenue Service requires that the price of a glidered truck must be less than 75 percent of the list price of a comparable new truck with the same equipment, according to Elkins and Fitzgerald. That's easy because new engines are so expensive.
Freightliner, Sterling and Western Star offer glider kits for several truck and tractor models. Peterbilt offers one. Manufacturers don't widely promote them because their appeal is limited and they compete with sales of new trucks. A few dealers assemble gliders and so do a few fleets.
In a startling announcement in mid-October, Daimler Trucks North America and its parent, Daimler AG of Germany, announced that they will eliminate Sterling Truck and close two factories, and consolidate remaining production in the Carolinas and Mexico. The major cuts will begin next March, with the closing of the Sterling plant in St. Thomas, Ontario, and proceed into 2010 with the closure of Daimler’s Portland, Ore., plant, which assembles Western Stars and military Freightliners. Executives emphasized that existing Sterling trucks and any built before the shutdown will continue to be supported by Sterling dealers.
The restructuring will terminate about 2,300 assembly workers and another 1,200 to 1,500 administrative people, many in Sterling's headquarters in Redford, Mich. It will shift Portland production to Mexico and North Carolina, and keep Freightliner and Western Star operations intact, executives said. They blamed the cutbacks on the sluggish economy, poor truck sales and higher manufacturing costs. There is considerable overlap among Freightliner and Sterling models, and that will be ended by eliminating Sterling. Western Star has a premium image and will continue in highway hauling and heavy vocational markets.
Cat, Navistar developments
Earlier in the year, Caterpillar Inc. announced that it would drop out of the North American truck-engine business by 2010. Cat cited industry consolication and the trend by OEMs to develop their own engines, which has made it increasingly tough for independent vendors to compete.
Cat will continue to support all truck engines it has sold over the years, and will continue to build engines for its own off-road machinery, which comprise 90 percent of the Engine Division's activity. Cummins will be the sole surviving independent come 2010.
Cat and Navistar International, meanwhile, agreed to collaborate in truck sales, with Cat's overseas dealers to handle International medium- and heavy-duty trucks and Navistar supplying a Cat-branded heavy vocational truck starting in 2010. Navistar will thus greatly expand truck sales in China and other Asian countries, and perhaps elsewhere. And Cat dealers here will have something new to sell, a situation that has angered International dealers.
Navistar also announced a joint venture with American LaFrance that will have LaFrance building vocational trucks using International engines and possibly other components. LaFrance now makes the Condor heavy low-cab-forward truck originally designed by Freightliner, plus a Class 7 variant. These probably will be the basis for the new trucks, which will be sold through International dealers and perhaps LaFrance's, too.
Finally, Navistar and General Motors have cancelled a pending deal which would have had Navistar buying GM's medium-duty truck business. GM will keep the business for now, but indicated the sale could be revived when the economy brightens.
September 28, 2010