Millennium issues for on-highway engine builders key on ownership, integration, and an ever-eroding customer base - Column

Diesel Progress North American Edition, Jan, 1999 by Rob Wilson

The cat's cradle of customer partnering and strategic alliances that has evolved in the 1990s leaves us lots to unravel as we approach the crossroads of a new millennium. We will certainly see more changes in ownership, a greater degree of vertical integration and a continually shrinking customer base in the global on-highway markets.

The centerpiece of this particular vision fell like a grand piano through a skylight when Daimler-Benz AG and Chrysler Corp. announced their plans to merge last May. The $40 billion merger was completed last month, but now the purpose of the merger has to be pursued and that means cutting costs, streamlining supply networks and combining resources.

And despite its protestations to the contrary, my perception is Daimler is rooted to vertical integration and will remain so. Though attracted by the new-age Chrysler purchasing approach, Daimler is really wedded to supply rationalization.

When the honeymoon is over, the considerable engine and drivetrain building capabilities of Daimler-Benz will be brought to bear on Chrysler products. It won't happen overnight, particularly since Daimler builds about 900,000 light vehicles to Chrysler's nearly 2 million, but going forward there is no question. Integration, thy name is vertical.

Who are Detroit Diesel's biggest customers? Freightliner, a wholly owned Daimler subsidiary, is the largest here in the U.S. And in Europe, through DDC's VM Motori subsidiary, Chrysler is the largest customer. Chrysler in the U.S. is considered a prime target for the DDC prototype Delta 4.0 L V6.

Keep in mind that Daimler already owns 20 percent of DDC and that its sister company MTU is a strategic partner of DDC on the new 2000 and 4000 series diesel engines. DDC execs say "No. No. A thousand times, no," to merger with Daimler, but it is still the talk of the industry. Additionally, Freightliner now has the new Sterling (previously Ford Heavy Truck) nameplate engine volume to source from outside or within.

I see that Chrysler is featuring a 7.2 L Caterpillar engine in the revived Power Wagon concept track at the upcoming Detroit Auto Show, but I wouldn't jump to conclusions. It's a design exercise.

But nothing's a sure thing anymore, even if currently fitted to production models such as the Dodge Ram pickup or the Sterling truck range, But the Daimler-Chrysler bond to DDC only stands to get closer and acquisition rumors persist, as they have for many years. Nissan Diesel and Daimler-Chrysler have also forged new links and more news is expected there soon.

Late last month General Motors announced it had increased its equity position in Isuzu Motors from 37.5 to 49 percent for the sum of $456 million. Last September, GM announced the DMAX Ltd., joint venture with Isuzu to build a new factory to produce a 6.6 L direct injection V8 diesel to replace the current GM Powertrain 6.5 L diesel. The latest move is more related to trucks than diesels, whereby GM expands its global commercial vehicle development and integration process.

Rumors of Volvo being purchased by Ford Motor also punctuate our winter wonderland as we begin 1999. Officials only confirm that the two are in talks dealing with cooperation on diesel engines. Separately, Volvo has announced the decision to develop a new line of passenger car diesels based on existing N series gasoline engines.

In the U.S., only Caterpillar and Navistar seem relatively stable for the near term, with Caterpillar busily digesting recent acquisitions such as Perkins and MaK, and International trying to keep up with the voracious appetite of the Ford Power Stroke program and its internal engine needs.

Cummins is viewed as an attractive takeover target or merger partner. It is hell bent on re-establishing its dominance in over-the-road tracks and that will only make margins thinner. Deere is looking to expand its niche role, but it's not at all clear how that might be done.

Slow but continual growth may describe the U.S. economy of the 1990s, but it doesn't describe the dynamics of companies operating in that environment. They agglomerate to achieve efficiency, buy the resources they need to move forward and peel away anything that doesn't fit.

As for me, I have recently reprogrammed the Vehicle Information Center on my Daimler-Chrysler Jeep Grand Cherokee, and have now selected the "German" language option for all messages. Time to get in step with the times.