Will a ‘world truck’ come to North America?

TORONTO, (Oct. 17, 2003) — 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 chassis and powertrain components, a common practice overseas — has crept into Freightliner products here. Mercedes-Benz engines are standard in some models, and recently DaimlerChrysler said it would end sales of its Detroit Diesel engines for new trucks made by other OEMs starting in January 2004. The company will dissolve its powertrain business group and turn over responsibility for engines, axles, and transmissions to its regional vehicle units. In North America, that means Detroit Diesel will come under the Freightliner LLC umbrella, along with Sterling Trucks, Western Star Trucks, and other bus and commercial chassis units.

The move raised questions about whether DaimlerChrysler and Freightliner have taken a step toward supplying a vertically integrated truck, or for that matter 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,” replies 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. Michel Gigou, the Volvo AB executive responsible for Volvo and Mack trucks and engines in North America, told Forbes magazine earlier this year 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.

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, president of ArvinMeritor 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,” he says. “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.”