Tier IV Confusion & Concern
After interviewing each of the major manufacturers for the February article, “Not All Tier IV Engines are Created Equal,” p. 38-44, we heard from a dealer friend who was confused and concerned about the new Tier IV engines that are mandatory in 2011 on all off-road diesel engines over 174 horsepower.
He’d heard that Deere might switch to SCR (Selective Catalytic Reduction) — the engine technology that AGCO is adopting across the board, and Case IH and New Holland will utilize it for their medium and heavy-duty engines — after investing heavily in EGR (Exhaust Gas Recirculation). Cummins also has committed to
EGR. He asked what we knew about it.
While each say they’re staying the current course, don’t be surprised if all the engine makers adopt some form of SCR technology as the fuel efficiencies and other advantages it offers may be too attractive to ignore.
He also asked about the higher price that will come with the new engines.
“Has anyone considered the ‘tax’ this puts on farmers as we’re told that the Final Tier IV will add 5-15% on the INVOICE price?” he asked. “New Holland has also told their dealers this and they’re asking for a bunch of orders to beat the deadline.”
There’s no doubt that EGR and SCR will increase the price of new farm equipment. How much and how it will influence purchasing decisions are the more pressing questions for dealers.
One manufacturer that Farm Equipment interviewed acknowledged off the record that, depending on the machine, Tier IV regulations would add about 2-4%, or about $7,000-$8,000 to customer invoices in 2011.
Two of the manufacturers we spoke with say they’re going to tie as many value-added options to the new tractors as possible to justify the additional costs created by Tier IV.
After attending a farm meeting in Chicago in January, Ann Duignan, machinery analyst for JP Morgan, said, “Most farmers that we spoke with said they will either pre-buy in 2010 or skip the next few years altogether. One farmer said his dealer told him that tractor prices would be up $20,000 in 2011.
“We expect some pre-buying in 2010 and a significant drop in industry sales into 2011 as a result,” she says.
If my past experience tells me anything, it’s that her projections have some basis in fact.
Much of my working career was spent working in or closely following the auto and trucking industries. Whenever new environmental regulations were introduced that required new engine technologies, buyers rushed to buy new equipment prior to the technology deadlines. This was then followed by a year or more of soft sales as purchases had been pulled forward and most buyers let others “go first” and try it out.
When you add fears of higher prices to an ingrained suspicion of new technology, you get reluctant customers. At least part of this behavior is the result of some trying to “scare” up sales this year at the expense of next year’s.
To counteract this, it’s been suggested that manufacturers may be willing to take a hit on margins in 2011 in order to help farmers get over concerns about the new engine technology and higher prices. They would look to improve margins with more dramatic price hikes the following year.
So what’s it all mean to you? It means you need to talk to your supplier to understand their plans. Then start educating your customers about what’s coming. Communication has a way of allaying confusion and concern.