Staying The Course
Focus on products, profit has held Kenworth, Peterbilt maker in good stead.
DEBORAH WHISTLER
EDITOR
David J. Hovind, president of Paccar, Inc., is in his 38th year with the company. He has held a wide variety of executive assignments with the Kenworth and Peterbilt divisions, and has responsibility for Paccar International.
His professional background includes labor relations; plant and operations management; sales, marketing, and general management.
He has been president and director of Paccar since 1992, and is also president of the board of administration for Paccar Mexico.
Hovind graduated from the University of Washington and attended executive programs at Stanford and Northwestern Universities.
In this exclusive interview, he discusses with HDT the state of the truck industry.
While most competitors were scrambling, closing plants and making huge cuts in personnel, Paccar Inc., manufacturer of Peterbilt and Kenworth trucks was holding a steady course guided by its focus on products and with less concern over quantity of sales.
"We operate this company at a very basic business philosophy," said Paccar President David Hovind. "We didn't enter into the buy-back schemes. We usually outperform our competition in a downturn anyway. But with the Perfect Storm attributes here, I think we're doing it in spades now.
"The focus on profitability is important here. And though we recognize the importance of market share, we've never been market share driven.
"When I started in this business there were a dozen truck builders in the U.S. and Canada alone, and now you look and seven or eight of them are no longer around. When you look in the trucking graveyard, most of them were market share driven."
Focusing on core business, he added, "long term, you're going to be a stronger, better player."
The Sept. 11 terrorist attacks have not had any real impact on the economic stability at Paccar, Hovind related. "There was the shock impact of the first few days. A major shock to the economy could cause some temporary hesitation, but as long as the economy continues to go on — long term, I don't see an impact," he said. "Short term, we haven't seen any cancellations or push-outs."
As a matter of fact, Peterbilt recently announced it was increasing production by about 8% at the Chillicothe plant.
Hovind attributes some of Paccar's success to its "geographic diversification in both its North American and European markets and a combination of our basic business philosophy — we sell quality products and we have a healthy independent dealer network."
Hovind doesn't predict any real upturn in the overall truck business for at least a year. "I think it will be probably six to 12 months before we see some upturn consistency. We do think there could be a pre-buy in the first half of next year. It may not be major, but there is some concern in the industry about the impact of the 2002 emissions regulations and what that will do to operating costs — the installation costs of an engine and so forth." But overall, "We see 2002 on average being no better than 2001," he said.
How will North American heavy truck sales finish in 2001? "If you throw in Mexico, we're looking at 165,000 to 170,000," Hovind said. "In times past, that would have been a good year, but there is excess capacity today. And in times past, the industry didn't have to deal with the used truck dilemma that it now faces."
The used truck issue is another that Paccar has strategically avoided. "You see the number of 100,000 considered the total population of used (Class 8) trucks. If that's the case, we have 5% of it. At our dealers — and the returns that come off Paccar Leasing — the total is 5,000 trucks. For us, that's an opportunity because the trucks are very saleable. We don't have a used truck problem."
As for plant closings, consolidations and restructuring, Hovind said Paccar anticipated the current crisis more than a year and a half ago and took action to avert wholesale revamping of operations.
"We constantly look at ways to reduce costs," he said. "We run lean all the time. We didn't have to restructure, but we started taking action 18 months ago to size our capacity and overhead and workforces to the expected market levels. We've done that, and had the benefit of having done that early. We have no major restructuring to announce."
Dealer profitability has also been a dilemma for some truck makers. Is it a problem for Paccar?
"Total in North America, we have 600 Kenworth and Peterbilt locations (including Mexico). At any given time, you'll have dealers with financial difficulty, but it's not a major issue for us," Hovind said.
Are there any plans to meld operations of Kenworth and Peterbilt to cut expenses?
"In North America, Kenworth and Peterbilt compete with each other. As a result, we have separate sales and marketing and technical groups that operate those divisions. They have separate, independent distribution organizations, and we're going to keep it that way.
"We operate the two divisions as fierce competitors, and that has served us very well."
He said he doesn't see any particular segment of the trucking industry leading the way back to economic recovery.
"I think it will be mixed. Fleets that cater to the economic segments that recover more quickly will have a headstart, but if it's a large mega fleet, a regional distribution fleet, or a 1-5 truck owner-operator, it will be those with the right operating ratios and the financial wherewithal that are going to benefit. I don't think any one of them will lead over the other. It's going to be a balance."
Has Paccar seen any dramatic customer failures?
"A couple, but that's all, Hovind said. "I think that as this year winds down — those people on a calendar fiscal year — there will be some balance sheets in bad shape. Some have not been writing down their equipment and there may well be some failures."
But overall, most Peterbilt and Kenworth customers are holding strong, he says.
Another positive for Paccar has been its leasing business, which Hovind says has had "eight or nine record years in a row."
"It gives the customer one more financial instrument to look at when he's making his purchasing decision," he said.
Providing captive finance has also helped. "It's been a real good partner for our truck dealers and truck divisions to have Paccar Financial. We currently finance around 30% of the U.S. and Canadian trucks sold and over 40% in Mexico. We have also expanded our financial arm in Europe. When others back away in a downturn, we've been there for the customer and the dealer."
As for restructuring plans at other truck makers which include changes in strategies to quit chasing market share at the expense of profitability?
"It's good news for the industry as a whole — suppliers, OEMs, dealers or end-user customers — when they make money. If they don't, it's not good business. If other people in the industry begin to focus on profitability and shareholder return — like Paccar has always done — it will be better for the entire industry."
More Coping With Crisis
Before & After The Terror
Hazmat Safety
• Fast Facts on Drivers
Insurance Recovery Shattered
Wheels of Hope
• Dumps To Ground Zero
• Going A Mile For America
• From Victims To Victims
Builders Hunker Down
• Used Trucks
