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out compliant vehicles. In the short term, operators will invest in re- search and development and product design to effectively achieve compli- ance. Operators will likely target and tweak engine components first. Te NHTSA has released a list of engine technologies that OEMs are devel- oping to achieve compliance, including electric turbo-com- pounding, engine friction reduction, cylinder deactivation and idle controls. Manufacturers will also redesign vehicle components such as air compressors and automatic tire pres- sure controls. Lastly, operators will invest in developing hybrid technologies and improving aerodynamics and transmissions. Phil Byrd, chairman of the American Trucking Association, has stated that members expect to recoup investments made to improve fuel efficiency within 18 months. Te per-operator cost of compliance with the HD pro-


Truck Dealers in the US


gram is difficult to determine, and will differ according to the manufacturer and the associated technologies. Te EPA and NHTSA have estimated the total cost of regulation to fall at $8 billion. To encourage industry participation, the agencies have released an extensive and detailed analysis of the cost and ef- fectiveness of various technologies in their Regulatory Impact Analysis for the program. To sustain margins, manufacturers are anticipated to pass


on cost increases associated with compliance to retailers and downstream customers. Te result will be higher prices for compliant medium- and heavy-duty vehicles during the next five years. Estimates for the price increases range from $2000 to as much as $6000, and analysts expect more pronounced price hikes for combination tractors. In the past, more stringent vehicle regulation and antici-


pated price increases led to heavy pre-buy activity, whereby customers purchased their fleet ahead of newly regulated model years. Tis occurred in 2007 and 2010, when the EPA tightened its grip on heavy trucks with these model years. However, because the HD Program’s increased fuel efficien-


cy will prove attractive to fleet owners and engine technology upgrades will not be as dramatic as with previous regulation, pre-buy activity will likely be temperate. Nevertheless, recent data from WardsAuto indicates strong gains for medium- and heavy-duty vehicle sales. As of July 2014, US sales of medium- and heavy-duty trucks jumped 15.7% since the same time the previous year, with nearly all Class 8 types posting double-dig- it growth. Truck sales are expected to continue to climb in the next five years, benefitting truck retailers. Additionally, dealers will absorb the higher purchasing cost of compliant vehicles by setting higher price points, which will increase their per- unit revenue. During the outlook period to 2019, IBISWorld projects revenue for the Truck Dealers industry to grow at an annualized 2.5% to $116.6 billion.


Truck Industry Manufacturers and Dealers 2014 Revenue


2014 Profit Margin


Truck and Bus Manufacturing in the US


$21.0 billion $103.2 billion 5.1% 3.7% Source: IBISWorld


Net Benefits Te expected benefits of the HD program will greatly offset


the cost of compliance and will materialize into a host of posi- tive externalities. According to the EPA and NHTSA, the com- bined standards will reduce CO2


emissions by 270 million t


and cut oil consumption by 530 million barrels over the life of model year 2014 to 2018 vehicles. In monetized terms, vehicle owners will save $50 billion in fuel costs over the lifetime of compliant vehicles, discounted at 3%. Additionally, the agen- cies estimate health-related benefits ranging from $1.3 to $4.2 billion by 2030, as a result of reduced ambient concentrations of particulate matter and ozone. Te Union of Concerned Scientists projects fuel and cost


savings resulting from more efficient trucks could spur a $4 billion increase in annual gross domestic product by 2020 and a $10 billion increase by 2030. Te nonprofit also expects 63,000 additional jobs by 2020 from the deployment of green- er trucks, with employment growth anticipated in California, Michigan, Texas, Florida and New York, among others. Certain industries will realize the benefits of the HD


program more directly. For example, operators in the Lo- cal Freight Trucking and Long-Distance Freight Trucking industries will benefit from lower per-mile fuel costs. In 2014, IBISWorld estimates purchase costs, inclusive of fuel costs, to stand at 29.6% and 29.4% of revenue for these respective industries. Te greater fuel economy standards of compliant vehicles is projected to reduce purchase costs for operators in these industries going forward. A 2014 report by Ceres, a sus- tainability advocacy group, found that higher costs associated with fleet upgrades will be offset by greater fuel economy from the HD Program standards, thus lowering overall freight costs.


2018 and Beyond Targeting heavy-duty vehicles makes sense: although they


account for only 4% of registered vehicles in the United States, heavy-duty vehicles generate approximately 25% of on-road fuel use and greenhouse gas emissions in the transport sector. In February 2014, the president announced a second round of fuel economy standards for medium- and heavy-duty vehicles with model years beyond 2018. Te Environmental Protection Agency and Department of Transportation are expected to finalize these rules by March 2016 and will build on the HD National Program.


Motorized Vehicle Manufacturing 19 1.9% 2.5%


2014-19 CAGR


2019 Revenue $23.1 billion $116.6 billion


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