Is There Something Freaky About Heavy Duty Economics?
By Bill Wade
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:
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Ethanol is not a surplus commodity. Corn based ethanol costs 29% more to make than it generates in energy.
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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.
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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:
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Expanding every business into new geographies and increasing productivity of every location by adding product adjacencies;
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Establishing a portfolio of pro platforms covering infrastructure to construction to lifetime equipment and facilities maintenance;
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Delivering compelling customer productivity by building upon established relationships that are enhanced by customer-facing digital tools;
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Ensuring low-cost provider status by leveraging the entire supply chain of The Home Depot.
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Fedex, UPS and other well financed fleets will continue to acquire fleets like Watkins and Overnite at a much faster rate.
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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.
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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?
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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.