Vertical integration may face uphill climb: some U.S. fleet operators dubious about prospect of "standard" truck

Diesel Progress North American Edition, Oct, 2003 by Mike Brezonick

Earlier this year when Daimler-Chrysler AG announced the restructuring of its commercial truck operations, one of the key aspects concerned standardization of major truck components, such as engines, transmissions, axles, chassis and cab modules. Sourcing major components from outside suppliers, the company said, would be discontinued and save a few isolated exceptions, only internal brands would be used.

While couched in the normal dry language of corporate communications, that announcement could be the beginnings of a sea change in the North American heavy-duty truck market. Because that move, along with similar efforts by Volvo, point toward the importation of European-style business model to the trucking industry.

In North America, most trucks are specified from the ground up, with myriad options for engines, transmissions, axles, etc. In Europe, trucks tend to be much more vertically integrated, offering more standard configurations with fewer options.

Efforts toward vertical integration have been tried before. Yet this time, led by two of the major global truck heavyweights--DCX owns Freightliner, the largest heavy-duty truck builder in the world and Volvo also commands a healthy global share--the chances of success may be greater than in times past.

In an effort to get a different perspective on this and other subjects concerning the trucking industry, Diesel Progress spoke with Steve Duley, vice president, purchasing at Schneider National. Headquartered in Green Bay, Wis., Schneider National is the largest privately owned truckload carrier in the U.S. and operates a fleet of more than 10,000 vehicles, the majority of which are Freightliner trucks with Detroit Diesel engines.

Q: Can the European-style business model work here?

A: "I don't think so. I'm not an expert on European trucking but from what I understand there is less diversity there--it's shorter routes, lighter trucks are used. There are more smaller carriers, more like a short haul or regional operation would be here.

"The way our geography is and with the differences in terrain and the different types of trucking like truckload and LTL and regional and transcontinental--I think that all leads to we have a broader range of requirements.

"That doesn't necessarily preclude what they're saying about vertical integration but I think it does lend itself to customers who have unique requirements and whether the OEMs can develop standard trucks that are going to meet all those requirements, I think that is pretty unlikely.

"In addition, in the past, the OEMs that have moved in this direction have tended to be more self-serving. They negotiate the lowest price and they go out and make supplier deals that make the trucks easy to manufacture. I'm not meaning to cast stones on them but our perception is the customers' needs and the weal true value to the customer has not really been the first priority in those choices. We have required that we be able to have a say in that to make sure that those value decisions are made by us and not by someone else.

"Where we've said we're opposed to it, we've been opposed to it based on our history and that it hasn't been very successful whenever we've tried it.

"If they truly can build a better thick that we can custom design and we can see where that's true, then we could accept that. It's not an ego thing where we have to spec our own truck. It's just that we didn't have a better result than we could get by doing it the way we've been doling it.

"I understand why, with the new emission laws and how severe they are, they have a problem with engines. I think they're being accurate when they say they, have tremendous costs and they can't afford to keep spending those kinds of engineering dollars. Even though it's a pretty big industry, I think that with the volumes with which we buy trucks, which is very small compared to cars, I cain see where they have a need to limit the options. Perhaps what they do though, is what they have already done with engines--you have fewer options. If it stops there, that's not bad. I mean if you can still build the rest of the truck.

"But I do think that there will be times when the engine is more important than truck, so they're taking the risk of losing business by saying if you buy our truck, you can only have this engine or this engine. I'm not saying that that's always the case. Hopefully you can get it where you have the engine and the truck you want. You don't have to have it he the opposite. It would be a tough call if we had to choose between the engine and the truck. Which one would we give priority? Take a second choice truck for the first choice engine? With these new emission requirements, I suspect the engine could win out."

Q: What's your impression of the '02 engines?

A: "We still remain concerned about the 2002 engines. We had very limited information going in. Now we're building information and so far when the trucks come out of the factory, their performance has been fine. They have been reliable so there haven't been the heart attacks of any major crises from that standpoint.