It's All About Scale As Ford And International Draw Closer

Diesel Progress North American Edition, March, 2001 by Rob Wilson

"It's all about scale," said John Horne, chairman and CEO of Navistar International, as he and Jim Donald-son, group vice president for global strategy, Ford Motor Company, announced a joint venture to build Class 6 and 7 (19,501 to 33,000 lb. gvw) commercial trucks.

Product design and engineering, vehicle assembly operations and expanded diesel engine programs will be provided by Navistar. Cabs, interiors, nomenclature and vocational focus will be distinctly Ford or International and will be sold separately through Ford and International truck dealers.

Trucks will have a common chassis, but Ford indicates it currently plans to retain the Caterpillar and Cummins engine options that it offers today. Cat has approximately 55 percent of that business and Cummins has about 25 percent. International will offer only its engines on that chassis. Trucks will be built at Navistar's Escobedo, Mexico, truck plant.

The new deal is termed a 50-50 joint venture with both companies having equal representation on the venture's board of directors and neither company will have an equity stake in the other. But the two executives made it clear that there is lots more to come in this cooperative venture.

International essentially becomes Ford's "Center of Excellence" partner for commercial trucks and diesel truck applications. Ford is already International's biggest customer and the engine supply agreements dating back to 1983 have been extremely successful.

Based on current production, Ford's commercial truck business in this sector has shrunk to approximately 1000 units per month, but that will combine with International volumes of over 5000 per month. With that scale, International looks like it will remain the "big hairy gorilla" of the North American midrange truck business.

On its own, how could Ford possibly justify investment in an all new truck for this sector? It just wouldn't happen at current production levels and yet Ford says it will not back off in the commercial truck market. So this is a way of accomplishing that. Ford is adamant about retaining competitive product over the full truck range from Class 1-7, with the Class 8 truck business having been sold to Freightliner some three years ago.

While Ford is also relying on this new venture with International to explore future truck diesel engine applications, it will continue to partner with PSA/Peugeot-Citroen for development of passenger car diesels under 3 L in displacement. But, again, scale is the reason. And Ford will also continue its exclusive arrangements with ZF on automatic transmissions and Getrag on manuals. None of that changes.

Just why is economy of scale driving new business paradigms throughout the industry and throughout the world in such a major way? More than anything, it is the mismatch between industry capacity and industry production that has companies clamoring to rationalize, optimize, simplify, cut their losses.

I think Ford has been more successful than others in recent years having the right product at the right time, spotting strategic acquisitions and moving the company forward without having to bet the company. No decade-lasting fiasco like GM's Saturn program. No mammoth undertaking like the DaimlerChrysler merger. The Firestone/Explorer episode could have been anyone's to wear.

Where is this Ford-Navistar relationship really headed? This latest announcement of the common chassis program is relatively small potatoes. There's the 4.5 L Power Stroke diesel coming from International next year for Ford small trucks. The new 6.0 L will follow. But there have to be some all new initiatives afoot that are bigger than this 12,000 midrange truck chassis deal.

Certainly the companies have demonstrated that they get along well after 18 years of close cooperation. They pioneered the full size diesel pickup and van markets of North America and hold a dominant 67 percent market share in it through December 2000.

Is Ford itching to get back in the Class 8 market? They'd have to wait another seven years to do that, but the clock is running. Might this new joint venture take on all the engine development and production facilities separate from the truck building operation? The picture I have in my mind is the entrance to Ford World Headquarters. There on the stone wall are the logos of some famous Ford vehicles. Names like Rover, Volvo, Aston Martin, Jaguar. It's a very large wall. That's all I'm saying.

ROB WILSON IS PRESIDENT OF DIESEL & GAS TURBINE PUBLICATIONS.