Spanning the globe for a ‘world truck’

Five years ago, at the height of his presidency at Freightliner LLC, Jim Hebe pledged that the company would never produce a totally vertically integrated truck in North America-at least, “Not in my lifetime,” he said. A lot has happened at Freightliner since then: following Hebe’s ouster in May 2001, the company has become more tightly integrated with its parent, DaimlerChrysler, the world’s largest producer of commercial trucks, buses, and powertrain systems.

Elements of vertical integration-typically where one manufacturer produces the truck, engine, and major drivetrain components-has crept into Freightliner products here. Mercedes-Benz engines are standard in some models, and last month DaimlerChrysler said it would dissolve its powertrain business group and turn over responsibility for engines, axles, and transmissions to its regional vehicle units. In North America, that means DaimlerChrysler’s Detroit Diesel engine subsidiary will come under the Freightliner LLC umbrella, along with Sterling Trucks, Western Star Trucks, and other bus and commercial chassis units. While Freightliner says current warranties remain valid, it will end sales of Detroit Diesel engines for new trucks made by other OEMs starting in January 2004.

The move raised questions about whether DaimlerChrysler and Freightliner have taken a step toward supplying a vertically integrated truck, or a vehicle spec they can offer to virtually any market on the globe.

“You’ve got to look at this new structure as a backbone to insure that we make the maximum use of common parts without wanting to design a ‘world’ truck,” said Freightliner president Rainer Schmueckle. “There will be no world truck.”

Freightliner isn’t the only truck manufacturer producing its own heavy-duty diesel engine for North America. Volvo Trucks North America and Mack Trucks do as well. And in recent years, alliances among suppliers and a need to keep costs in check have prompted the packaging of driveline components in order to slim down the databooks. When International introduced its redesigned 4000 Series trucks in 2001, officials boasted how the engine/transmission combinations had been pared down to 34 from more than 800 combinations in previous models. The result: better on-road performance and lower engineering costs.

Michel Gigou, the Volvo AB executive responsible for Volvo and Mack trucks and engines in North America, recently told Forbes magazine that truck makers have to start weaning customers off their jigsaw-puzzle approach to ordering trucks. “We have to learn to say, ‘Mr. Customer, this is the truck you will need,'” Gigou said.

Truck buyers are more ready to accept that concept today, says Vic Wintjes, the long-time maintenance supervisor for Canadian Tire who now runs a consulting practice in Brampton, Ont. Customers who focus more on a vehicle’s lifecycle costs see the value in components that are designed to mesh together efficiently. They’ll trade off better performance for less choice, he says.

For OEMs, too many options water down the engineering process, says Eddie Tschirhart, director of technical services for the Canadian Transportation Equipment Association, a manufacturers’ group. “Really, a truck chassis is an aggregate of assembled parts. Traditionally, the proprietary stuff for an OEM was in the cab, while the rear-end or engine or axles were supplied by brand X or brand Y,” he says. “Vertical integration steps outside of that box and allows them more control of the total vehicle.”

For the OEM, it’s a Faustian bargain. More integration imposes a heavier burden on the manufacturer for new technology, engineering, and customer service. This is the prime reason, as Hebe stated, that a completely integrated vehicle in the near future is unlikely.

Tom Gosnell agrees. “I don’t think integration is a key dynamic. I think it’s what it has been, which is a potpourri of strategies depending on the scale and size and particular interest of the OE right now,” says the president of ArvinMeritor Commercial Vehicle Systems, a major supplier of drivetrain and brake components. “Going forward, I don’t doubt that OEs will offer fewer choices, but that doesn’t necessarily mean vertical integration. It can mean virtual integration, meaning you have more long-term partnerships that are longer than what they used to be.”

Accelerating the trend, Gosnell says, have been the demands of new emission regulations. With all the human and capital investments needed to keep up, it’s unrealistic to expect OEs to shoulder responsibility for the truck, engine, and other components alone.

“Why take all that on your balance sheet?” he asks rhetorically. “Why have all that inflexibility and cost, when you have qualified partners who can do it just as well or better?”

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