Suppliers Cite Diversification as Key to Surviving Downturn
By Jonathan S. Reiskin, Associate News Editor
This story appears in the April 7 print edition of Transport Topics.
LOUISVILLE, Ky. — While many of trucking’s most important suppliers had lackluster sales last year and said they expected more of the same through most of 2008, a few said they were able to weather the double-whammy of 2007’s pre-buy hangover and freight drop-off with revenue from investments in foreign markets less affected by the troubles in North America.
While U.S. heavy-truck sales plummeted about 46.8% in 2007 and kept falling early in 2008, carriers overseas are buying in large numbers — Eastern Europe is booming, Western Europe is holding steady and Asia’s strong growth continues.
Those developments have provided some suppliers who displayed their products at the Mid-America Trucking Show here late last month with opportunities to balance the downturn in North America. Some of these suppliers further insulated themselves by diversifying their product lines to soften trucking’s traditional seesaw.
“For years, we were tied to North American trucking, and that made for financial swings,” said Jim Kelly, president of the engine business at Cummins Inc. “But with what we did in 2007, our efforts finally, finally demonstrated returns that we could improve in spite of the North American truck decline.”
Cummins increased the net income it reported in 2007 over the 2006 level, even though North American truck sales fell off sharply.
Kelly and some of his colleagues said during interviews at MATS that Cummins benefits from strong business in China, spreading into Russia, and bringing in revenue from operations in power generation, filtration systems and product distribution.
Tom Plimpton, president of Paccar Inc., said his company was able to swap its main sources of revenue from 2006 to 2007. While domestic sales of Kenworths and Peterbilts boomed in the pre-buy year of 2006, Paccar brought in 64% of its worldwide revenue last year from outside the United States, Plimpton told suppliers at breakfast at MATS.
The strong growth in European revenue helped cushion Paccar’s U.S. fall-off.
Engine maker Caterpillar Inc. has become so diversified in product lines and geography that its executives have been publicly staging an internal debate as to whether the company will remain in the truck engine business.
Truck and trailer component supplier ArvinMeritor Inc., is in the midst of a reorganization, shedding some businesses and adding others so the Troy, Mich., corporation can concentrate more on commercial vehicle systems, and expand where it finds new opportunities, such as remanufacturing.
Also, the manufacturer of axles, suspensions and brake systems is broadening globally.
Charles “Chip” McClure, chairman and chief executive officer of ArvinMeritor, said during a MATS press conference that he has a goal of “thirds,” with worldwide revenue generation split evenly among North America, Europe and Asia. For now, McClure said, he is pleased that the company gets half of its revenue from outside of North America.
Plimpton, who spoke March 28 to the Heavy-Duty Manufacturers Association, said Paccar, Bellevue, Wash., has benefited from its activities in financing, leasing, spare parts, besides its global truck and engine making.
With respect to the company’s parts business, he said the company aims its Paccar brands at truck owners who buy early in a vehicle’s life cycle, but also offers private brands to aftermarket suppliers who sell more economical parts for older trucks.
Plimpton said Paccar expects U.S. and Canadian heavy-duty sales of 175,000 to 215,000 for this year, well below the 2006 record of more than 300,000.
Chris Patterson, CEO of Daimler Trucks North America, said he expects this year’s heavy-truck market will be a continuation of the second half of 2007. With two straight years of weak sales, Patterson said it all but guarantees 2009 cannot be a booming pre-buy year ahead of changing emission regulations in 2010.
“2009 can’t have the volumes we saw in 2006. They [the truck-making industry] can’t resume quickly enough to do that,” Patterson said.
With business becoming more international it can make old relationships harder to predict. An ArvinMeritor vice president in charge of North American aftermarket business said his division was facing “significant headwinds” domestically.
That assessment generated some surprise because if fleet managers are keeping their trucks longer and not buying new vehicles, those same customers should buy aftermarket parts for maintenance — at least under the old business models.
However, ArvinMeritor’s Carsten Reinhardt, president of Commercial Vehicle Systems, explained that many late-model used trucks in the United States have been sold not to local secondary buyers, but to overseas markets, with Russia in particular having a large appetite for used American trucks.
“This economy has two effects. It’s not just selling aftermarket parts for more repairs. There are also exports and these trucks are going out of the system here, making for an aftermarket in Russia,” Reinhardt said.
This story appears in the April 7 print edition of Transport Topics.
LOUISVILLE, Ky. — While many of trucking’s most important suppliers had lackluster sales last year and said they expected more of the same through most of 2008, a few said they were able to weather the double-whammy of 2007’s pre-buy hangover and freight drop-off with revenue from investments in foreign markets less affected by the troubles in North America.
While U.S. heavy-truck sales plummeted about 46.8% in 2007 and kept falling early in 2008, carriers overseas are buying in large numbers — Eastern Europe is booming, Western Europe is holding steady and Asia’s strong growth continues.
Those developments have provided some suppliers who displayed their products at the Mid-America Trucking Show here late last month with opportunities to balance the downturn in North America. Some of these suppliers further insulated themselves by diversifying their product lines to soften trucking’s traditional seesaw.
“For years, we were tied to North American trucking, and that made for financial swings,” said Jim Kelly, president of the engine business at Cummins Inc. “But with what we did in 2007, our efforts finally, finally demonstrated returns that we could improve in spite of the North American truck decline.”
Cummins increased the net income it reported in 2007 over the 2006 level, even though North American truck sales fell off sharply.
Kelly and some of his colleagues said during interviews at MATS that Cummins benefits from strong business in China, spreading into Russia, and bringing in revenue from operations in power generation, filtration systems and product distribution.
Tom Plimpton, president of Paccar Inc., said his company was able to swap its main sources of revenue from 2006 to 2007. While domestic sales of Kenworths and Peterbilts boomed in the pre-buy year of 2006, Paccar brought in 64% of its worldwide revenue last year from outside the United States, Plimpton told suppliers at breakfast at MATS.
The strong growth in European revenue helped cushion Paccar’s U.S. fall-off.
Engine maker Caterpillar Inc. has become so diversified in product lines and geography that its executives have been publicly staging an internal debate as to whether the company will remain in the truck engine business.
Truck and trailer component supplier ArvinMeritor Inc., is in the midst of a reorganization, shedding some businesses and adding others so the Troy, Mich., corporation can concentrate more on commercial vehicle systems, and expand where it finds new opportunities, such as remanufacturing.
Also, the manufacturer of axles, suspensions and brake systems is broadening globally.
Charles “Chip” McClure, chairman and chief executive officer of ArvinMeritor, said during a MATS press conference that he has a goal of “thirds,” with worldwide revenue generation split evenly among North America, Europe and Asia. For now, McClure said, he is pleased that the company gets half of its revenue from outside of North America.
Plimpton, who spoke March 28 to the Heavy-Duty Manufacturers Association, said Paccar, Bellevue, Wash., has benefited from its activities in financing, leasing, spare parts, besides its global truck and engine making.
With respect to the company’s parts business, he said the company aims its Paccar brands at truck owners who buy early in a vehicle’s life cycle, but also offers private brands to aftermarket suppliers who sell more economical parts for older trucks.
Plimpton said Paccar expects U.S. and Canadian heavy-duty sales of 175,000 to 215,000 for this year, well below the 2006 record of more than 300,000.
Chris Patterson, CEO of Daimler Trucks North America, said he expects this year’s heavy-truck market will be a continuation of the second half of 2007. With two straight years of weak sales, Patterson said it all but guarantees 2009 cannot be a booming pre-buy year ahead of changing emission regulations in 2010.
“2009 can’t have the volumes we saw in 2006. They [the truck-making industry] can’t resume quickly enough to do that,” Patterson said.
With business becoming more international it can make old relationships harder to predict. An ArvinMeritor vice president in charge of North American aftermarket business said his division was facing “significant headwinds” domestically.
That assessment generated some surprise because if fleet managers are keeping their trucks longer and not buying new vehicles, those same customers should buy aftermarket parts for maintenance — at least under the old business models.
However, ArvinMeritor’s Carsten Reinhardt, president of Commercial Vehicle Systems, explained that many late-model used trucks in the United States have been sold not to local secondary buyers, but to overseas markets, with Russia in particular having a large appetite for used American trucks.
“This economy has two effects. It’s not just selling aftermarket parts for more repairs. There are also exports and these trucks are going out of the system here, making for an aftermarket in Russia,” Reinhardt said.
