By year end, possession of heavy truck manufacturers could reside within three companies, only one of which is domestically owned. Volvo, through its merger with the commercial vehicle segment of Renault, already owns Mack. Freightliner Corporation owns Freightliner and Sterling, and recently entered an agreement to purchase Western Star. Paccar, the owner of Kenworth and Peterbilt, is said to be in negotiations to purchase International Trucks from Navistar.
Paccar is the only heavy truck builder with US domestic ownership. Freightliner Corporation is a wholly owned subsidiary of DaimlerChrysler, a company with executive offices in both the US and Germany, but essentially a German entity. Volvo headquarters remains in Sweden along with strong influence from its French merger partner.
This wave of consolidation makes heavy truck manufacturing more closely held than at any time since the breakup of White Motor Company in the late 1970s. At that time, White built trucks under its own nameplate and marketed trucks from Freightliner, Western Star, Autocar, Diamond T, and Reo; the last two combined into Diamond Reo just before the breakup. Mack owned Brockway, a name that has fallen into oblivion. The big-three auto makers each had heavy truck lines with GMC and Chevrolet at General Motors along with heavy trucks from Ford and Dodge.
The bankruptcy of White and its subsequent sale to Volvo was followed by General Motors dropping the Chevrolet heavy truck line and sale of the GMC heavies to Volvo. With the dissolution of White, Freightliner and Western Star returned to independent marketing. Later, General Motors sold the Detroit Diesel engine portion of its Detroit Diesel Allison Division to Roger Penske and recently attempted, unsuccessfully, to sell Allison to ZF, the German transmission manufacturer.
Until recently, the landscape looked like this. Volvo had financial control of Mack, which continued to operate with independent management and a separate dealer network. Freightliner Corporation operated Freightliner Trucks and Sterling Trucks, previously the heavy vehicle arm of Ford, as separate companies with separate dealer networks. International and the Paccar labels, Kenworth and Peterbilt, remained independent.
On two days in the third week of July 2000, that landscape ruptured, and DaimlerChrysler through its Freightliner subsidiary was the cause. On July 19, DaimlerChrysler announced an agreement to acquire 100% of Western Star Truck Holdings, paying $42 Canadian per share for a total of $670 million Canadian. In US dollars, the deal is worth $28 per share and a total of $449 million. In a separate deal, the Australian subsidiary of Western Star will be sold to Terry Peabody, the current chairman of Western Star, for roughly $39 million Canadian.
The deal for Western Star requires approval by government agencies in the US, Canada, and Australia. James L Hebe, chairman of Freightliner, says the sale should close by the end of 2000.
Freightliner will integrate Western Star into its Sterling support operations. Sterling also is built in Canada. The Western Star brand name and truck line will continue to be sold. The product line is considered a complement to Sterling, which will not reduce or alter its product offering in response to the Western Star acquisition. The deal includes Orion Bus Industries, which will become a part of Freightliner's specialty vehicle operations that now builds fire fighting apparatus and Thomas Built Buses.
In addition to the Western Star name, DaimlerChrysler will acquire the Western Star headquarters and manufacturing plant in Kelowna, British Columbia, and a brand new plant in North Charleston, South Carolina. The bus operations will bring in production capacity in Mississauga, Ontario, and Oriskany, New York. Acquisition of this additional manufacturing capacity follows a recent expansion of the Sterling plant in St Thomas, Ontario.
Western Star trucks will be sold through Western Star and Sterling dealers, which will be combined into a single network. The two dealer organizations have the potential for a total of 460 sales outlets.
An aftershock from the Western Star purchase moved the landscape again the following day when DaimlerChrysler announced its intent to purchase the remainder of Detroit Diesel Corporation. DaimlerChrysler already owns 21.3% of the engine manufacturer's stock. The deal valued at $23 per share is worth a total of $423 million, bringing DaimlerChrysler's total expenditures to $872 million in just two days.
Penske Corporation, holder of 48.6% of Detroit Diesel stock, has agreed to the sale. Roger Penske, chairman of Detroit Diesel, says the merger will provide strength and stability for the company.
The deal covers all on-highway, off-highway, automotive, parts, and remanufacturing operations at Detroit Diesel. This includes Detroit Diesel's global operations along with the headquarters building and engine plant in Redford, Michigan.
DaimlerChrysler and Detroit Diesel have pursued joint ventures in the past. The Series 55 engine of a few years ago was one of these efforts. DaimlerChrysler intends to continue selling engines with the Detroit Diesel brand name. No announcement has been made regarding possible sale of Mercedes-Benz-manufactured engines under the Detroit Diesel label.
The two sales will have different results for different parts of the affected companies. Western Star will gain access to capital resources that it would not have had as a small independent truck manufacturer. Freightliner, Sterling, and Western Star all should get access to an enhanced engine supply. Freightliner already is Detroit Diesel's single largest customer. In addition, Hebe has been outspoken in recent months about the desirability of more vertical integration in truck manufacturing. Such integration, he says, gives manufacturers the ability to enhance the level of technology built into heavy trucks.
The situation is much more fluid at International. Stockholders who control roughly 30% of Navistar International have instructed the company's board of directors to investigate a sale of the company as a way to enhance its stock price, which has been falling in relation to its competitors. The stockholders involved are primarily institutional investors. The share price of Navistar stock has fallen 26% in the last year. One possibility under consideration is reported to be a public offering of the engine company and outright sale of the truck manufacturing operation.
One possible buyer of International Trucks could be Paccar Inc, owner of Kenworth and Peterbilt. In addition to these domestic nameplates, Paccar owns DAF in the Netherlands, and Fodden and Leyland in the United Kingdom. Purchase of International would add significantly to Paccar's North American market share. Talks between Paccar and Navistar are said to be in very early stages.
Other buyers for International could be Volkswagen in Germany or Fiat in Italy. Rumors have circulated about International and Fiat for years.
