When Predictions Meet the Real World

Until this month, few studies have ever compared the EPA’s cost predictions to the actual cost of meeting its motor vehicle emission mandates. A recent study completed by NADA/ATD, which looks back at the 2004-2010 medium- and heavy-duty truck emissions mandates, reveals that the EPA underestimated actual compliance costs on average by a factor of two to five. It shows what can happen when a regulatory proposal – based on far in-advance predictions – seeks to set mandates far in the future. Importantly, the study documents the real-world market disruptions that can occur as a result.

The lessons learned from this report apply directly to the proposed MY 2017-2025 fuel economy regulations for light-duty vehicles. That rulemaking, combined with previous Obama administration fuel economy mandates, will raise the average price of a vehicle by $3,000, according to EPA and National Highway Traffic Safety Administration estimates. When faced with unreasonable federal regulatory mandates that increase motor vehicle costs, buyers of light-duty vehicles – similar to what commercial truck buyers experienced – will seek out less expensive alternatives in the marketplace.

Let’s hope this study gives regulators and lawmakers pause when considering what we’ve found.  Here are remarks I gave on the issue at a press conference March 8:

Having been in the truck business since 1991, I recall all too well when the 2004, 2007 and 2010 truck emissions regulations were implemented. With each set of regulations trucks became more expensive, and the 2004 and 2007 models were less reliable and hampered by lower fuel economy.

Anticipating these concerns, many buyers rushed to pre-buy trucks ahead of these new emissions mandates. As would be expected, the following year, truck sales fell off a cliff.

Instead of buying new trucks, many operators chose to hold onto their older trucks longer and willingly accepted the higher operating and maintenance costs and reliability risks.  Large fleet purchasers did the same. For four years after the 2007 regulations, trucks sales were depressed and the market for delivered class 8 trucks fell 60%. It took until 2011 for the market to begin a turnaround.

In cases where they absolutely needed a truck, purchasers turned to the used market. Since these rules came into play, I have also seen a surge in rebuilding or repurposing of older trucks sometimes side-skirting new emissions regulations. Concurrent with the drop in new truck purchases, the average age of a truck on the road skyrocketed. Today, the average on-highway commercial truck averages more than six and a half years old, about 11 months older than the historical average dating back to 1979. Vocational trucks in the Boston market have increased their average age to nearly 12 years of age.

Jobs suffered as a result!

Manufacturers were forced to cut thousands of jobs. A top Volvo truck executive warned in 2006 that the new environmental regulations would cause such a decline in truck sales that it would have to lay off workers. That same year, Volvo let 600 people go as new truck purchases plummeted. The same year Peterbilt cut its workforce in half. Freightliner was forced to lay off 1,800 in 2007 and eventually closed a plant two years later. Navistar experienced similar very lean times; but, through natural attrition, closing a plant in Canada and shifting production they managed through the period.

In my own store, there were across the board pay and benefit reductions, several layoffs and travel restrictions. Sales of vehicles dropped as a result many of the commissioned sales people suffered deep reductions in compensation. Fortunately, our product diversifications and the parts and service business sustained us through the long downturn.

The primary goals of these mandates were to reduce the environmental impact of trucks. The EPA mandates focused on cutting nitrous oxides (NOx), particulate matter, and unburnt diesel gases. A good goal, but as I said earlier sales of new vehicles suffered. Because the new technologies that EPA intended to reduce truck emissions never made it on the road, the environmental benefits were significantly delayed.

Setting emissions standards for any vehicle, large or small, too far in advance is dangerous for any regulatory agency. The variables are simply too difficult to predict—at least with any accuracy. For example, what technologies will be used? What will the economy look like? What will fuel cost?

The risks are simply too high and the unintended consequences are too great. People’s jobs and their livelihoods—dealers, manufacturers, truck operators and their supply chain—hang in the balance. Any goals should be set in smaller increments of time and in more manageable steps providing the flexibility to incorporate new technologies.


ABOUT THE AUTHOR: 
 Dick Witcher is one of Commercial Truck Trader‘s principal dealers, Minutemen Trucks, Inc., and a chairman of the ATD (American Truck Dealers).  His vast knowledge in the trucking industry is truly one-of-a-kind. 


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