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Blocking & Tackling
XII
July, 2006 Truck Parts & Service
Is There
Something Freaky About Heavy Duty Economics?
By Bill Wade
Wade& Partners
Economics is often derisively
referred to as the “dismal science,” perhaps deservedly so. There is not much
about the Laffer Curve or Liquidity Preference Theory that makes you want to run
out and buy an Econ text for a little summer reading.
Until now ...
Freakonomics (by Steven Levitt and Stephen Dubner) is a challenge of
convention that all of us need once in a while to remind ourselves that the
obvious is not always apparent. It is short and refreshing ... even a bit
controversial.
The book celebrates Levitt's underlying belief that the
modern world, despite government obfuscation, academic complication and the
deceit of political correctness, is not impenetrable.
It is not unknowable, and if the right questions are asked,
the solutions are flat out intriguing. We should try applying these
unconventional thought patterns to some myths currently affecting our business:
Ethanol will be transportation’s salvation and
the damnation of ‘Big Oil’.
Where does rational thought
flee when gas hits $3.00/ gal.? Would those calling for a windfall profits tax
on oil companies (that put billions at risk to process petroleum) want to extend
that tax to companies like ADM, the country’s largest ethanol producer?
ADM just finished its biggest quarter ever, fueled by the
newfound demand for E 85 and other biofuels. But wait. How we can forget the
laws of physics and economics? Consider:
·
Ethanol is not a surplus commodity. Corn based ethanol costs 29%
more to make than it generates in energy.
·
Ethanol currently benefits from federal subsidies of $.51 /
gallon, and is protected by a $.54 / gallon tariff on imported ethanol.
·
Biodiesel fuels are far from proven commodities for our fleet
customers (ask your filter supplier).
There are plenty of reasons to support fresh thinking in
the energy policy area. However, silver bullets are still in short supply.
Consolidation has pretty much run its course in
the heavy duty business.
In every sector of our
business, the real transformational wave is just beginning. The rollup
activities of the late 1990s were just practice.
·
Home Depot Supply is now a $12 billion, 20,000 employee industrial
distributor with over 900 locations. Specific steps HDS is taking to support its
plan to become the world’s largest diversified wholesale distributor (with more
than 1,500 locations) and to grow sales to $28 billion by 2010 include:
o
Expanding every business into new geographies and increasing
productivity of every location by adding product adjacencies;
o
Establishing a portfolio of pro platforms covering infrastructure
to construction to lifetime equipment and facilities maintenance;
o
Delivering compelling customer productivity by building upon
established relationships that are enhanced by customer-facing digital tools;
o
Ensuring low-cost provider status by leveraging the entire supply
chain of The Home Depot.
·
Fedex, UPS and other well financed fleets will continue to acquire
fleets like Watkins and Overnite at a much faster rate.
·
This year marks 25 years since Mercedes bought Freightliner, and
the full force of integration is just now coming into focus. Watch for MAN and
International or even a well placed bid by Nissan or Toyota to upset the OEM/OES
applecart.
Innovation is automotive
oriented. All the cool new stuff is for cars.
California recently hosted something called the Clean Heavy
Duty Vehicle Conference in conjunction with the Hybrid Truck Users Forum. Nearly
500 truck guys discussed trends in technologies and fuels from the perspective
of vehicle users.
·
What clean fuels – fuels cells, hydrogen, hybrid electric, ULSD,
synthetic fuels, natural gas – can be brought to the mass market in the next
decade? What new parts and systems are involved, and what are the service
opportunities?
·
What exciting cutting edge drive train, propulsion systems, and
enabling technologies are possible solutions to reducing emissions and
increasing fuel economy in heavy duty vehicles?
Here’s a thought. Scrap the hugely expensive HDAW show in
favor of an advanced technology-only expo. No NASCARs need be shipped. Invite
the government and Wall Street. Get everyone to show off their most interesting
new stuff, market ready or not.
Let’s once see what the best of our industry can do to
shape our own Freakonomics.
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