Executive View: Forward to the Basics

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MT: You have a broad background of experience in the trucking industry and with the Kenworth organization. Can you elaborate on that and how you see it helping you make Kenworth a better company as you take over the General Manager’s role?

Christensen: I do bring a fairly broad background – exposure to the manufacturing process, exposure to Kenworth’s dealers, the product, service capabilities, and the people who are Kenworth. I was hired by Kenworth in 1983 and worked the first 8 years in the Seattle plant. After that I moved to PACCAR Parts, which supports both Kenworth and Peterbilt dealers. I became the General Manager there in 1996. Prior to that I was in charge of sales and marketing operations, systems organizations and all of the distribution centres in North America. In 2000 I became responsible for PACCAR’s worldwide aftermarket services group. I think my background and experience has given me a good understanding of customers, dealers and Kenworth, which will serve the company well.

MT: How will Kenworth be different under your guidance?

Christensen: Kenworth is bigger than one person. It’s all of our dealers and plants, and a rich tradition of product. My role is to make certain our people are focused on what brings value to the marketplace. The way I like to think of the commercial vehicle market is that despite all of its complexities it’s actually pretty simple. We as a manufacturer need to bring the best value to the operators of our products and that value comes through things such as the initial purchase price, the cost of operation, the residual value, the quality of the dealer service organization and the technical service available. The operators of our trucks are interested in making money and we have to be able to provide the product that allows them to do that.

MT: How is Kenworth positioning itself to ride out the downturn in good enough shape to take advantage of the eventual upturn?

Christensen: One of the pictures that I put on my wall when I took the job, is of our product line. If you go through it I think you will find we have the best product in each of the market segments in which we compete. In the T800 we have one of the lightest, strongest, most durable vehicles with the highest resale value in its class. If you look at the W900L it’s viewed as a premium truck by owner-operators and brings the highest residual value in the industry. The T600 is the most aerodynamic commercial vehicle in the world. The T2000, for a wide-cab application, has the most interior storage capability of any of our vehicles. With the T300 we have really a classic heavy duty chassis on a medium-duty application, which is going to deliver a great deal of durability to the owners of that product and that has been recognized by the J.D. Power awards. And if you back away from the models and you say what does Kenworth mean, Kenworth is about great looking trucks that are durable and ride well. When we design those trucks, in many areas we are designing them for the latter part of their life. We have million-mile cabs, for example. From a product point of view we are in great shape and when it comes to our dealers, customers rate us among the top in areas such as availability of parts, hours of operation, integrity of dealer organization, etc. So, the best products and the best service organization place Kenworth in a very good position, no matter the business climate.

MT: How are your dealers weathering the downturn? Are there any measures in particular that you have implemented to help them out?

Christensen: Very well. And the reason they did so well is that they are so good in the parts and service area of the business. The absorption of the Kenworth dealer body has historically been high and remained high over the last few difficult years. That has enabled them to withstand some of the pressures of the used truck and new truck market. (Absorption is a measure of the contribution of parts and service profitability to cover all of the expenses of a dealership.) In terms of measures, PACCAR dealers are the only dealers in North America where the factory actually manages their inventory. What we have been able to do through our managed dealer inventory program is to improve the parts availability for the dealer service shop and at the same time reduce their overall investment in inventory, so we have provided them with more working capital.

MT: You have about 80. dealers in Canada. Is that number where you want it to be or is there room for growth?

Christensen: That’s close to where we want to be. We would like to have more locations in eastern Canada.

MT: How much of an upsurge did you see because of the pre-buy this summer and fall?

Christensen: What we saw was more or less what we expected and that is a significant level of interest in trucks prior to October and a fair bit of caution after October. As we move ahead, the fourth quarter of this year and the first quarter of next year will be tough on everyone and I think the quality of our dealer network and our product will help us withstand the next six months. What happens beyond the first quarter of 2003 will really be a function of the general economy.

MT: Our own Buying Trends survey conducted among Canadian carriers and owner-operators in the second quarter of this year, noted a distinct growth in buyer preference for Kenworth. What do you attribute that to and are you seeing a similar trend in the American market?

Christensen: Yes, we are seeing that in the U.S. as well. In the last year there have been more people inquiring about Kenworth than in a long time – customers we have never done business with before and customers we used to do business with and who are now looking at us again. We are up to about 12% market share right now compared to about 10% market share two years ago. We estimate total market sales of 150,000 trucks in the U.S. and Canada this year but we see a shift mix occurring in those numbers. There are winners and there are losers. If you look at the manufacturers that are retaining share and gaining share, the common theme is superior product and service value.

MT: All truck manufacturers have been placing greater emphasis on leveraging economies of scale to curtail absorbent price increases. I assume this is a trend that will continue in coming years. How is it affecting how your own company approaches the marketplace?

Christensen: We have evolved from being a custom truck manufacturer building solutions that work for specific applications real well to a place where we have a catalogue and we let people choose what they want. That challenges everyone’s capabilities – from engineering, to manufacturing, to dealers, to the supply chain – because there is so much product and configuration proliferation that occurs. I think where we are going to go is back to where we were, to a place where there are custom solutions instead of custom options.

MT: Considering the reluctance financial institutions have shown to lend money to owner-operators and small fleets even during the good times, how much of an advantage is it to have your own captive financing arm?

Christensen: What PACCAR Financial offers Kenworth, its dealers and truck owners, is consistency. So many financial institutions come in to the market place when times are right and then leave the market place when times are not right. We don’t have the option of leaving the market place based on the market swings. So we have to develop relationships that are long lasting.

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