I Want It, I Want It, I Want It, I Want It...
YOU CAN’T HAVE IT!
With truck builders moving toward more vertically integrated rigs, are you worried you won’t be able to get what you want? No problem. You still can – if you’re willing to pay a small price.
Tom Berg
Senior Equipment Editor
The days are numbered when OEMs will assemble trucks almost any way the customers wants them. The move to vertical integration by most North American truck manufacturers is already well underway.
And that’s especially true with the advent of new low-emissions engines.
Fleet managers here have seen specifications lists on some models greatly foreshortened as North American original equipment manufacturers strive to save research and engineering money by cutting back on their corps of vendors.
North American truck makers are moving toward a more European specification model. In Europe, OEMs decide what goes into their heavy trucks and present them to buyers on a more or less take it or leave it basis. Across the pond, customers are accustomed to the practice and are confident that the resulting vehicles have been well tested and that they are advanced in design and performance.
It’s like buying a medium-duty truck here: You choose horsepower, an automatic or a manual transmission, wheelbase, axle ratings and tire size, and from two or three trim levels and maybe a custom color, and off you go.
You might pick a vendor engine over the OEM’s own and a six- or seven-speed tranny instead of a five, but that’s about all. The trucks are good, and in fact, this is the way Mack has built its heavies for many years. What’s the problem?
The problem is, many truck buyers are used to extensive spec’ing and simply don’t want to give it up. The ability to choose specific components assures fleet managers that their trucks will remain familiar to mechanics and technicians, that tools and parts already on hand can be utilized, and that the trucks will be durable and run longer.
Carl Kirk, executive director of the Technology & Maintenance Council of the American Trucking Assns., says managers realize that more vertical integration is inevitable, given consolidations among corporations and foreign ownership of U.S. builders. But fleet managers wonder whether trucks built to OEM specs will have the quality that they need, he says.
OEMs don’t track their trucks’ performance beyond their warranty periods, so they really don’t know how good they are, Kirk says. ATA’s Vehicle Maintenance Reporting Standards allow fleet managers to extend the tracking time and supply reliable statistics on the worth of whole trucks and individual components and parts. The VMRS method could be used on vertically integrated trucks to judge their worth, Kirk says.
The heart of any truck and its most expensive component is its engine, and this is where vertical integration is most obvious. Mack says that 99% of its trucks are sold with Mack diesels, and it’s because Mack has long labored to make its engines superior. Two other builders, Volvo Trucks and Freightliner LLC, are emulating that example by offering their own engines, and customers are accepting them.
Volvo, now a Mack sister company, says a majority of customers buy its 12-liter, diesel and it hopes its new 16-liter engine will gain similar loyalty. The big D16 is actually the first of a new family of engines that Volvo and Mack will begin selling in 2007. Although jointly built, they will differ in power ratings and operating characteristics to suit each company’s customers.
Does this mean Volvo is trying to squeeze out Cummins and its ISX, the alternative engine in Volvo’s VNs? No, says Scott Kress, Volvo’s senior vice president for sales and marketing. Cummins has a strong following among customers and a strong distributor network to support that engine. That works to Volvo’s advantage. And Volvo had to work hard to set up its dealers to properly support its engines. Still, more vertical integration of the powertrain is coming because of the high costs of research and development and the company’s desire to grow its own businesses.
Freightliner companies – Sterling and Western Star as well as Freightliner itself – are on the same path. Freightliner bought Detroit Diesel and ceased selling them to other OEMs. Through its DaimlerChrysler parent, Freightliner combined its Detroit products with those of Mercedes-Benz. M-B and Detroit engines are now standard in many Freightliners and Sterlings, and in ’07, there’ll be a new family of in-house diesels.
Caterpillar diesels remain optional in those trucks, and Cat is still the most popular engine in Western Stars. Indeed, M-B power isn’t offered in ’Stars because customers show no interest in it, says John Merrifield, who heads Western Star and Sterling operations. Neither he nor his colleagues at Freightliner Trucks want to try to force anything on customers.
Mercedes transmissions and Alliance axles, built under a recently set up in-house venture, are also standard in many Freightliner family trucks. Having their own components allows the companies to control designs and limit the costs of installing them in vehicles, Merrifield explains. Relying solely on vendors for those major components requires OEMs to re-engineer their chassis whenever vendors make major changes.
Yet vendors are also partners. ArvinMeritor makes the Alliance Axle products for the Freightliner family. It also makes Volvo-branded axles to Volvo’s specs. Volvo, in fact, sold its axle plants in Europe to Meritor. So ArvinMeritor is part of vertical integration, even as it continues to separately sell its own axles and transmissions.
Pull-through marketing to truck buyers – where vendors convince them to insist on spec’ing their products – is alive and well, as spokesman Mike Pennington puts it.
Huge fleets with thousands of power units believe in extensive spec’ing and have the clout to keep the practice alive in North America, notes Eaton spokesman Don Alles. It might not survive if fleets here were sized like those in Europe, where a few hundred trucks comprise a “big” fleet. But a few European manufacturers like MAN build assembled trucks almost in the North American manner, he says.
Meanwhile, Eaton and Dana, partners under the Roadranger marketing agreement, have forged deals to supply driveline components to Paccar’s Kenworth and Peterbilt units. Less extensive deals are in place with other OEMs, Alles says. Paccar also has a preferred supplier agreement with Cummins, even though Caterpillar engines are chosen by the majority of customers for some models. And Peterbilt definitely considers itself a custom builder, not a vertically integrated one, says Scott Pearson, assistant general manager.
Sometimes vertical integration can make an OEM more competitive on price, says John Fay, heavy duty marketing manager at International Truck & Engine Corp. Right now, International’s 9000 series tractors come only with increasingly expensive Cat or Cummins power, forcing International dealers to bid against competitors who offer less costly engines. A new family of 11- to 13-liter diesels acquired through its new partner, MAN of Germany, will allow International to offer lower-priced trucks to economy-minded fleet customers.
Under previous management, International struck preferred partnership deals with several suppliers. One was with Fontaine for fifth wheels, which can be factory installed, while Holland products must be installed by dealers using factory supplied kits. Fay says no more such deals will be done at International because they interfere with production efficiency and with choices that customers want.
In the light end of Class 8 and into midrange products, General Motors is trying to steer customers toward the Duramax 7800 diesel it gets from its Japanese partner, Isuzu. It charges about $1,000 less for the Duramax than for Cat’s C7, yet 65% of buyers still choose the Cat. So Cat will be a supplier to GM for a long time to come, executives say.
Choice is key to being competitive in this market, say the OEM executives. And they must not only offer alternatives to any in-house products, but also price them reasonably.
Merrifield at Sterling-Western Star says he charges no more than a 5% premium for non-standard vendor components. Charging more than that would drive customers to competitors.
So it appears that buyers can resist vertical integration after all, as long as they’re willing to pay a little more for the privilege.
