Tier 4 Regulations and What They Mean to DealersBy Joanne Costin
Article Date: 07-01-2010
Copyright(C) 2010 Associated Equipment Distributors. All Rights Reserved.
Uncertainty is in the air as dealers prep for a change in technology, measure opportunities, and ready themselves for potential threats.
Change is always a little bit unsettling, and it’s coming faster than ever before in the construction equipment industry. Dealers across the country are preparing for new Tier 4 machines, with one eye on their OEMs and the other eye on emissions regulations where they do business.
Dealer concerns center around getting their people trained in the new technology, anticipating the impact on sales so they can effectively meet demand, and preparing their customers for what is to come. Tier 4 emissions standards are being phased in by power category. Tier 4 began in 2008 for all engines under 19kW, and for those greater than or equal to 19kW but less than 56kW. For engines in the 130-560 kW and those above 560 kw, Tier 4 Interim applies January 2011. For the 56-130 kW category, Tier 4 Interim applies in 2012. Final standards are applicable three years after the Interim start date. Final Tier 4 standards require that emissions of particulate matter (PM) and Nitrogen oxides (NOx) be further reduced by about 90 percent.
Until recently, for the most part, (excluding California) it has been manufacturers who have been burdened with the effort of meeting T-4 emissions regulations. But increasingly, equipment end users and dealers are facing tighter emissions standards imposed by local public entities. In fact, the level of dealer anxiety over Tier 4 might very well be correlated with a dealer’s location, and whether or not that area has been designated by the U.S. Environmental Protection Agency (EPA) as a nonattainment zone. There are 300 areas currently defined as nonattainment, but dealers need to be aware that EPA is currently considering a new stricter emissions standard for ground level ozone that will significantly increase the number of areas in nonattainment. The John Deere website reports that number may increase to 500. The announcement of the new standard is expected to be finalized next month. In addition, an increasing number of construction jobs involving federal stimulus dollars, are requiring contractors to meet stricter emissions standards.
The greening of construction sites is well underway in places like Chicago, Vancouver and Massachusetts. In May 2009, the Cook County Board in Illinois passed into law the Green Construction Ordinance that states by May 2011, diesel construction vehicles performing public works contracts must have Level 2 controls. A Level 2 Emission Control Device achieves a PM emission reduction of 50 percent or more from uncontrolled engine emission levels. Additionally, by 2014 for prime contractors or 2016 for subcontractors, a Level 3 Verified Diesel Emission Control Device will be required, achieving a PM emission reduction of 85 percent or more from uncontrolled engine emission levels. According to Bob Jones, vice president sales for S.E.S. Equipment, based in West Chicago, Ill., other public entities such as the Illinois Tollway and the O’Hare Modernization Program are also considering even tighter emissions regulations. “It looks like we are going to see a whole new round of more stringent requirements,” said Jones, “as the individual public bodies tighten their laws to mirror the new equipment coming out.”
“The major equipment manufacturers are not an issue,” added Jones. “Whenit comes time for federal EPA standards to take effect, they will be ready. The problem is the customer equipment, large owner fleets, equipment dealer rental fleets and used equipment trade ins. A customer wants to use a particular machine on a jobsite only to find out that they are faced with a law or regulation that will not permit the use of that machine. Now, a diesel emission filter or retrofitting is needed to meet the requirements.”
The Massachusetts Department of Environmental Protection (MassDEP) requires contractors working on projects financed by the State Revolving Fund (SRF) to install retrofit pollution controls in their construction equipment engines. Beginning in 2001, the SRF program required that diesel oxidation catalyst (DOC) technology be installed in at least half of the construction equipment used in SRF projects. A year later, the retrofit requirement was expanded to encompass all equipment. In January 2008, MassDEP amended the retrofit requirement to apply only to engines rated 50 horsepower or greater that will be used on a project site for 30 days or more.
Paula Benard, president of C.N. Wood, a Komatsu dealer operating in New England, is concerned that if the state immediately moves to adopt Tier 4 standards in January, customers might be forced to retrofit Tier 3 machines. She doesn’t envision companies rushing to buy Tier 4 Interim equipment either. “Not unless someone can say that a brand new Tier 4 Interim purchased in 2011 is still going to be good in 2014,” said Benard.
In California, the recession has taken such a toll on the industry that the California Air Resources Board is revising its strategy for the clean-up of on- and off-road diesel engines and has directed staff to return in September with specific proposals to provide additional flexibility.
Retrofits in California have also stalled. “All the dealers were going after that pretty aggressively, but in the last three months that has died off,” said Mike Miller, general manager of Papé Machinery, a Deere dealer in Sacramento. “OSHA, ARB (Air Resources Board) and AGC (Associated General Contractors) got together and were concerned about visibility issues. Then the regulation was delayed.”
When asked what their expectations were for Tier 4 machines on 2010 and 2011 sales, nearly 67 percent of dealers responding to a CED survey said they anticipated pre-buying to avoid price increases. And it is a strategy that would make sense where contractors are not facing any new emissions regulations. However, in places where emissions regulations may tighten or are uncertain, it’s not an option. Other dealers expressed opinions on rising resale values for Tier 3 machines, while some predicted lower resale values for Tier 4 machines because they cannot be operated in countries that do not have ultra-low sulfur fuel.
In Miller’s opinion, the combination of a sluggish economy and uncertainty about emissions regulations will keep buyers from purchasing. Mike Buckantz, CEO of Associates Environmental, concurs that pre-buying won’t be happening in California. “People would not do that in California, even though they would get a price break. They would be faced with putting in
Most dealers agree that the timing of Tier 4 couldn’t be worse.
“It is not a good time, and they put more cost in the machines,” said Garry Frelick, president of Douglas Lake Equipment, a Kawasaki dealer with locations in British Columbia and Alberta. Caterpillar executives have reported that prices may increase as much as 12 percent in the 120-560 kW power range, with about a third of the increases taking effect in January 2011.
To offset those cost increases, OEMs will focus on reducing overall operating costs and improving fuel efficiency. According to Cummins, overall operating costs for Tier 4 products will be significantly reduced with fuel efficiency improvements of up to 5 percent, dependent on rating and duty cycle. At this point in time, several OEMs are playing it close to the vest, and have not divulged information on pricing, technology, training or delivery – even to dealers.
In markets where more stringent emissions regulations are emerging, the first manufacturers to deliver Tier 4 machines may have a competitive edge. “From our perspective, in Illinois,” said Jones, “with these requirements imminent, we should say to our OEMs, we are not buying any more Tier 3s; we will only be buying Tier 4.”
Nearly 60 percent of dealers surveyed believe that sales will be soft in 2011 due to the buyer reluctance to be the first to try new technology. Without regulation being forced on contractors, Buckantz believes “the economy is the one issue, and that is it.”
Market by market, dealers will be trying to anticipate demand for both Tier 3 and Tier 4 machines. “I don’t see any indication that contractors are running out to buy equipment in this economy,” said Jones. “So I believe when implementation comes, it is going to be a fire drill.”
Tim Kramer, owner of Kramer Ltd., a Caterpillar dealer based in Saskatchewan, predicts a mild response to Tier 4. “I think you are going to have 70 percent of the people who are ‘wait and see,’” he said, “and 30 percent who will want to move forward. This is a very conservative market, and they don’t want to change.”
Regardless of the air quality regulations, dealers in both the U.S. and Canada recognize that Tier 4 brings with it significant technological change. On average, dealers responding to our survey rated their service departments as somewhat unprepared (2.81) on a scale of 1 to 5, where 1 is not prepared and 5 is very prepared.
“The day-to-day maintenance between Tier 3 and Tier 4 will be almost identical,” said Clint Schroer, off-highway communications manager for Cummins. “The oil change maintenance intervals will also remain unchanged.” The EPA has set minimum intervals for Cummins particulate filter cleaning of 4,500 hours for above 173 hp (129 kW) and 3,000 hours for below 174 hp (130 kW). “For most applications this will be a very infrequent service event,” explained Schroer.
“You will see increased use of fuel additives for the loss of lubricity in the fuel,” said Miller in Sacramento, whose company had one of the Deere Tier 4 test machines. Tier 4 machines will run on ultra-low sulfur fuel, which, according to Miller, loses lubricity when cleaned.
Dealers may take comfort in knowing that Cummins increased its field test program for Tier 4 compared to the Tier 3 field test program. “Field tests and related OEM evaluation work for Tier 4 started in 2007 and have now reached well over 40,000 hours in a variety of duty cycles and applications,” said Schroer.
There are some indications that contractors may be increasingly looking to their dealer to repair and maintain their equipment.
“With everything computer-controlled and integrated together, about the only thing that a contractor can do is the change the oil or replace a failed hose,” said Miller. The high cost of diagnostic equipment and technician training may cause contractors to change the way they think about maintenance, he added.
Kramer echoes that view and is sympathetic to customers. “It is going to be very complex. It is going to drive business to dealerships and that will make the customers uncomfortable, said Kramer. And it is the dealer’s duty to educate them, he believes.
“I think the dealers are going to be very important, in that they will become a trusted agent of the end users,” said Kramer. “The customer still has the check book.”
Buckantz also believes there is opportunity for the dealer in all of this. “I think the big opportunity is in helping their customers get through onerous bid spec requirements and to prepare them for regulations that are coming down the pipeline,” he said.
Customers Aren’t Ready to Service Tier 4
Are customers prepared for Tier 4? Overwhelmingly dealers said no. More than eight out of 10 responding dealers indicated their customers were not prepared to work on Tier 4 machines. Meanwhile, Deere and Cummins appear to be taking a lead role in the education process.
“Cummins has created a website, www.Tier4.info, to help answer questions on Tier 4 Interim technologies we will use from an operation standpoint and the benefits end users and OEMs will see starting next January,” said Schroer,
John Deere’s emissions website also includes a wealth of information to educate end users on emissions and sustainability topics.
Dealers will add value to their operations by helping their customers contend with regulations, explaining new technologies and exploring options. This will mean reviewing customers’ fleets on a machine-by-machine basis to identify noncompliant engines and possible solutions.
“We have taken an educational approach,” said Miller. “We want to become advisors, not just sell them into the latest and greatest machine.”
Jones said he recently met with a fairly large contractor who previously hadn’t bid on public jobs. “All of sudden he wanted to bid on those jobs and here is a requirement for pollution control.”
It’s a scenario that is likely being played out in many places. The fact that emissions regulations are a moving target presents a challenge for contractors making decisions on whether to retrofit, repower, replace or rent. For this reason, dealers may have concerns about getting into the complexities of retrofits and repowers. It is advisable to designate a Tier 4 emissions compliance staff expert for your dealership to keep up to date on regulations, as well as potential funding sources for retrofits and repowers.
In the Chicago area, Jones believes there will be an increase in new equipment sales when contractors are forced into those moves, as well as more rental of Tier 4 machines. “We will have to retrofit some of our equipment,” said Jones. “No dealer can afford to turn over his entire rental fleet.”
How things will shake out when the new Tier 4 machines arrive is truly uncertain. But sweeping changes will no doubt create winners and losers among both dealerships and OEMs.
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