B.C. government pledges $85 million to seed Western Star expansion

KELOWNA, B.C. (May 11) — The British Columbia government will invest $60 million in Western Star, the proceeds of which will be used to build an industrial park and new plant in Kelowna, B.C., that will produce 40 vehicles a day.

The province also will provide $25 million over 10 years to train new workers at the factory.

Construction is expected to begin toward the end of next year, with production to commence in late 2001.

At 31 trucks a day, Western Star has been unable to produce enough trucks to substantially increase market share in the United States, where class-8 sales have been hot. Sales of 3017 class-8 trucks in the U.S. last year yielded a 1.4% share, up just one-tenth of a point over 1997 even though Western Star sold about 500 more trucks. The company sold 2433 class-8 trucks in Canada in 1998 for a 8.4% share.

Earlier this year, Western Star broke ground on a $40-million, 330,000-square-foot assembly plant near Charleston, S.C., that will start production next year.

“We will be the only truck manufacturer with new facilities on both the East and West Coast and we expect this to give us a strategic competitive advantage,” said Western Star chairman and CEO Terrence E. Peabody.

He added that both facilities will help the company launch production of a new class-3 vehicle, the Western Star “Warrior.”

Western Star is also working hard to improve its dealer network south of the border.

For the B.C. government, the investment cements Western Star’s commitment to Kelowna and means 2200 new jobs in the province’s Okanagan Valley, a region that has struggled economically.

Government and company officials expressed hope that some of Western Star’s major and local suppliers will build facilities in the industrial park to support the truckmaker’s operations.

In making its investment, the province will buy $60 million dollars of zero coupon preferred shares of Western Star, one-third of which are convertible into common shares in 2000, 2003, and 2006 at 95% of the then-current market price of the common shares.

Trading of Western Star shares was halted at midday yesterday pending formal announcement of the sale.