Focusing on the whole package

Volvo Truck’s Michel Gigou believes the ultra-low-emissions environment requires an integrated approach.

Michel Gigou is a busy executive. When the Volvo Trucks North America CEO and Mack Trucks chairman isn’t focusing on efforts to meet customer demands for efficiency and reliability in a post-October truck, he’s working to further integrate the support organizations for the two truck makers. We spoke with Gigou in late April on how the Environmental Protection Agency’s 2002 and 2007 emissions mandates are playing out in the truck marketplace.

CCJ: How does business look for the rest of 2002?
Gigou: The economy of North America is going through what we would call a weak phase. Our part of the industry won’t see any positive impact from the economy until spring 2003. The main challenge will be the management of the arrival of the new engine. Overall demand for trucks in North America should be more or less at the level of last year.

CCJ: Will production capacity fill up this summer due to the EPA requirement?
Gigou: Possibly, but I hope that the industry won’t return to its downfall, which is producing too many trucks and expecting too many customers to place an order. I see some of our competitors with huge dealer stock orders. We don’t want our dealers to commit to a slot where they don’t know who is going to be the customer.

CCJ: What is the situation from Volvo’s perspective as an engine manufacturer and developer?
Gigou: We are, in fact, ready. One of the big challenges is not the new technology but the fitting of that new technology into the chassis, and that has been the challenge of the past 18 months. We have been concentrating, of course, to make sure our engine is EPA ’02 certified. But, from the customer viewpoint, as important is making sure that the truck that hosts the engine is an efficient truck. In the end, the customer is buying a truck, not an engine.

CCJ: What will be the cost to the customer?
Gigou: It’s going to be several thousand dollars – less than $5,000. On fuel economy, we are confident that our trucks will have only a slight deterioration of fuel economy. The engines represent a negative, but you can compensate by managing things like friction and airflow. The goal was to balance 100 percent. Unfortunately, we have not been able to balance 100 percent.

It’s important to note that we have had the same type of cooperation and integration of the chassis engineer and the engine engineer whether we’re talking about the Volvo powertrain or the Cummins ISX.

CCJ: Volvo recently has seen growth in the sales of its trucks in the secondary market. Is this a pre-buy phenomenon or do you attribute it to other factors?
Gigou: With used trucks today, we are very much talking about the pure impact of the economy. We heard a lot of people who said they would buy used trucks instead of new trucks. We have seen some large customers going for some fresh repo-type truck to make sure they have an efficient fleet of trucks. But that’s the exception.

CCJ: How will the industry meet EPA’s 2007 mandate?
Gigou: For ’02, the technology was known. It was the engineering proof – not proof of concept – that had to be done. For ’07, we are at proof of concept. It’s going to generate a real challenge for the industry. To maintain efficiency for our customers, it will be mandatory to have a new generation of engines and to have a new rolling base to host the engines and the accessories that will be needed. Engine OEMs will have to be sure of large volumes in order to invest. It will be a challenge for truck OEMs to ensure efficiency.

CCJ: Will that mean more consolidation?
Gigou: It’s a possibility. Consolidations happen in two periods. One is during a depressed market, at the bottom of the cycle. Consolidation also happens when the scale of the business is too small to face the investment that is imposed to the industry.