The last couple of months have been brisk with acquisitions, mergers and consolidations sure to change the face of our industry. "Freightliner is buying Western Star", "DaimlerChrysler plans to purcha...
The last couple of months have been brisk with acquisitions, mergers and consolidations sure to change the face of our industry. “Freightliner is buying Western Star”, “DaimlerChrysler plans to purchase Detroit Diesel”, “Penske Truck Leasing acquires Rentway”, and “Meritor and Arvin Industries merge” — it’s hard to read the headlines and not come away feeling the major OEMs and their suppliers are gripped in a distinct form of merger mania. Yet despite the obvious concerns about what such consolidation will mean in terms of the variety, quality and price of equipment available to carriers, the consolidation trend belies sound operating stragegy and underscores market reality.
The investment community’s message to OEMs and their suppliers alike has become quite simple: get big, get profitable or get out. To get big and realize the economies of scale that can deliver substantial savings on the bottom line, OEMs have no choice but to consolidate and globalize.
And as OEMs consolidate and globalize they want suppliers large enough to serve their global needs. Also, as the commercial truck market evolves towards a module business, OEMs are looking for suppliers sophisticated enough to provide complete systems (for example, by combining axles and suspensions, dressed-out brakes and axles, etc.) Such demands from their OEM customers, combined with the investment community’s push for large-scale growth, is also driving equipment suppliers into consolidation. As CEO Larry Yost revealed to business editors after his company Meritor Automotive doubled its size by merging with Arvin Industries to form a $7.5 billion Tier 1 supplier, the new company would also have no choice but to keep growing. Yost felt that to remain competitive the new company, ArvinMeritor, had to double in size yet again and do so within the next five years. More mergers or acquisitions must obviously be part of ArvinMeritor’s near future.
But what does all this consolidation mean to equipment buyers? Will your operation be better or worse off because of it?
I think equipment buyers have much to gain from the market’s consolidation, provided the consolidation doesn’t reach the point where competition becomes seriously compromised. Scale enables OEMs and their suppliers to amortize their R&D costs over larger volumes, making it easier to invest more money towards improving their products.
Consolidation, combined with globalization, also allows OEMs and their suppliers to use their worldwide capacity to meet peak market demands in a particular country without the long-delivery schedules the North American truck market suffered through the last few years. For example, Freightliner’s planned acquisition of Western Star and its new North Carolina plant would answer some immediate production-related questions at Freightliner, which wants to introduce several new products over the next two years.
Along with the benefits come compromises. Consolidation with European-based companies is sure to make our truck manufacturers take a closer look at the European approach to truck selling. While North America will remain an end-user spec’d vehicle market for a few years yet, I think in the long term it will be difficult to argue against the efficiencies of moving to an OEM-spec vehicle market.
This month, I also have some growth news of our own to report. Julia Kuzeljevich, who many of you know from her work on our sister publication Truck News, has joined Motortruck as assistant editor. In her new role Julia will be responsible for developing leading editorial for our trucking group of magazines as well as helping add to our comprehensive online offerings.