Caterpillar Exits U.S. Truck Market

This story appears in the June 16 print edition of Transport Topics.

Caterpillar Inc., which lost its dominant position in heavy-duty engines last year because of persistent problems with 2007-compliant models, said it will pull out of the North American Class 8 market by 2010, except for a severe-duty truck and engine in partnership with Navistar International Corp.

The Caterpillar decision leaves Cummins Inc. as the sole independent heavy-engine manufacturer in North America as most truck makers have moved to emphasize proprietary engines.

George Taylor, Caterpillar’s director of global on-highway products, told reporters June 12 in a conference call, “We see a ceiling of between 240,000 and 250,000 heavy trucks in North America and it will be increasingly difficult to participate as an independent engine maker.”

At the same time, Caterpillar and Navistar announced they would work together to sell trucks and engines around the world, with initial focus on China, Western Europe, Russia, Poland and Australia.

“We plan to introduce a severe-duty truck aimed at construction, logging, oil fields and low-boy in the 2010 time frame,” Taylor said. Navistar will build both the truck and engine, although they will be “reconfigured” to Cat specifications and both will carry the Cat brand, Taylor said.

“I like the color yellow” for the trucks, he added, referring to Caterpillar’s traditional machinery color.

Taylor said that Caterpillar will continue to sell Class 8 power plants through 2009 and will support the estimated 1.6 million Cats on the road in North America “for the life of those engines.”

Navistar, the nation’s largest producer of medium-duty diesel engines, will begin producing its first heavy-duty models — dubbed MaxxForce engines — this summer, through an arrangement with German manufacturer MAN AG.

The other U.S. truck maker that hasn’t been producing a proprietary engine, Paccar Inc., will begin offering its own brand in 2009. Paccar, owner of Kenworth Truck Co. and Peterbilt Motors Co., will begin making North American Class 8 engines based on models from its European DAF unit.

Daimler Trucks North America, which makes Freightliner, Sterling and Western Star Trucks, is a subsidiary of Daimler AG, which makes Detroit Diesel and Mercedes-Benz engines.

Volvo AB, Sweden, offers its own engines for Volvo and Mack trucks in North America.

Caterpillar had been the market leader for heavy-duty truck engines all of this decade until last year, when Cummins outsold it, a trend that continued in 2008.

All engine manufacturers had to introduce new technology in 2007 to meet tightening federal emissions rules, but Caterpillar’s engines were hampered by reports of frequent break-downs and poor performance (11-12, p. 5).

Caterpillar was the market leader in Class 8s in 2006, with 81,335 new engines registered in the United States for 29.8% of the total, while Cummins registered 67,463 for 24.7%, according to R. L. Polk & Co., Southfield, Mich.

In 2007, with the overall truck market down sharply, Cummins had 52,800 new engines registered for 30.9% of the market, while Caterpillar fell to 43,907, or 25.7%, Polk said.

Daniel Ustian, Navistar chairman and chief executive officer, told reporters that Navistar made the move in North America, because “we have not been a good player in severe service, with only a 10% market share, and this agreement allows us to tap into that market.”

Ustian said the severe-duty market is 15,000 to 18,000 new vehicles a year, “and we expect to get a good share of that.”

The two companies intend to reach a final agreement on their global partnership within six months.

Ustian said International’s Class 8 customers historically have chosen Cummins engines about 75% of the time, with 25% spec’ing Caterpillars.

International, Peterbilt and Kenworth said they will continue to offer Cummins engines in 2010, although the only Cummins model offered on International trucks will be the 15-liter model. Buyers of 11-liter and 13-liter engines will have to buy MaxxForce units, Ustian said.

He said that Navistar’s agreement with Cummins runs only to 2013 and “one possibility” after that was for Navistar to build its own 15-liter engine.

Volvo spokesman James McNamara said Volvo does not offer Caterpillar engines and does not comment on the actions of other companies.

Daimler Trucks North America did not return calls seeking comment.

“We have been expecting something like this for several years,” Robin Easton, Paccar’s treasurer, told TT. “We intend to sell Caterpillar engines for as long as they make them, and then will offer clients a choice of our Paccar engines or Cummins, with which we’ve had a great, 60-year relationship.”

Caterpillar’s troubles with on-highway engines began even when it dominated the market.

Caterpillar paid $128 million in fines to the Environmental Protection Agency for engines it sold in late 2002 and 2003 that were not compliant with new EPA emission standards (1-12-2004, p. 27).

That same year, Caterpillar won EPA approval for what it called its ACERT technology, which it said differed from the exhaust gas recirculation technology used by all other producers.

Both Navistar and Caterpillar said that one key point of their agreement is that both rejected selective catalytic reduction technology to meet 2010 U.S. and Canadian mandates to reduce nitrogen oxide emissions. They also have decided not to use SCR anywhere else in the world.

Cummins will use EGR to meet the 2010 mandates, while Daimler, Volvo and Paccar will use SCR, employed in some European trucks since 2004.