Paccar CEO shares positive outlook

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Q. Can you provide an overview of PACCAR?

A. PACCAR is a global technology leader in the design, manufacture and customer support of light, medium and heavy trucks sold around the world under the Kenworth, Peterbilt, Daf and Foden brands. Truck sales are facilitated by PACCAR Financial, PacLease and PACCAR Parts. There are 16,000 PACCAR employees and over 1,700 dealer service points worldwide.

Q. What factors are key to PACCAR’s ongoing success?

A. For 96 years, PACCAR has earned its success based on three principles, all of which are driven by the outstanding contribution of excellent PACCAR employees. First, to deliver the highest-quality products and services to its customers. Second, to be the global leader in innovative design, engineering and technology so that our products have the highest resale value and the lowest operating cost and exceed our customers’ expectations. Third, to be the premium supplier in the industry and generate an excellent return to our shareholders.

Another element that contributes to the strength of the company is that there has been a consistent vision leading PACCAR for 96 years. Within PACCAR, values such as integrity, honesty and your word is your bond are integral to the success that we have achieved worldwide and define the character of everyone who works in the company.

Q. Could you explain in more detail how PACCAR achieves its product image in the marketplace?

A. PACCAR products are built in modern manufacturing facilities dedicated to the highest quality. The distribution network is complimented by progressive organizations such as PACCAR Financial, PacLease and PACCAR Parts. We strive to be the very best in all elements of the business. It’s very encouraging that PACCAR has been recognized in every facet of the business as a global leader. The T600, which revolutionized trucking design in North America, was awarded the national design medal a few years ago. Our manufacturing facilities were selected as leaders by the Society of Automotive Engineers for their LEAD award in 1999 and last year Fortune magazine selected one of our plants as being one of the top three manufacturing facilities in North America. Our Leyland facility in England was selected as the best manufacturing plant in the United Kingdom this year. The products we build – Kenworth, Peterbilt, DAF and Foden – are recognized worldwide as having the highest customer loyalty, resale value and premium image in their markets. The entire PACCAR team was extremely pleased that J.D. Power and Associates selected the Peterbilt and Kenworth Class 6/7 vehicles as No. 1 in customer satisfaction in the medium-duty truck market.

Our Information Technology group has garnered many awards as they have established PACCAR as a leading information technology company. PC Week 1999 ranked PACCAR as the No.1 company utilizing computer technology in all aspects of the business. In 2000, Business Week named PACCAR as one of the top 50 Web-enabled companies, and recently InternetWeek magazine highlighted PACCAR as one of the top 100 e-business companies in the world.

Additionally, our 1,700 independent dealers are committed to outstanding customer satisfaction and utilize many tools developed by PACCAR in all elements of the business. While appreciating industry awards, PACCAR is constantly looking for ways to improve. It takes the commitment of every person in PACCAR to be the best and excel in today’s market.

Q. How has DAF grown since your acquisition of it in 1996?

A. For over nine decades, PACCAR has grown internally and through acquisition. In fact, it’s fair to say that PACCAR has been one of the more active participants in the consolidation of the trucking industry.

Until DAF was acquired in 1996, our results were strongly focused on the North American market. Last year, nearly 40 percent of PACCAR’s trucks were produced outside of North America.

PACCAR has three major truck divisions – Kenworth, Peterbilt and DAF – and each of them is focused on developing expertise in its own products and facilities and dealer networks, but also working together to meet industry standards for chassis, powertrain and ergonomics. There is detailed benchmarking between each company to ensure that they are always improving their results.

DAF is a company that has a wonderful customer service record. It is generally regarded as the best in Europe. DAF has renewed its entire product range in the last five years, first with the 95XF, which earned the 1998 “Truck of the Year” award and, recently, with the launch of the new CF and LF products, which are already gaining great success in the marketplace. Along with the new cabs and chassis, DAF has designed and produced a new family of engines. They are the first in the European market to meet Euro 3 requirements. Other integral enhancements, such as disc brakes, GPS screens and the highest level of interior fit/finish in the industry, add to their quality reputation. As we like to say, DAF is the Rolex of the European truck market. In addition to investments in updating facilities and IT systems, DAF has also been actively engaged in developing its dealer network. Over the last couple years, 50 new dealer service points have been added to the network including major investments in some of the largest truck markets in Europe, such as Berlin, Lyon and London.

Q. Many manufacturing companies have been losing money in the recent weaker markets. How is PACCAR performing?

A. Shareholder return is very important to PACCAR. Our goal is to be profitable in all phases of the business cycle. PACCAR has been profitable for 61 consecutive years.

Return to shareholders as measured by share appreciation and dividends is a good yardstick to evaluate the value generated for shareholders. Over the one-, five- and 10-year periods ending December 2000, PACCAR has performed better than the S&P 500 results – the only automotive company to achieve that distinction.

We regularly compare our financial performance to that of other manufacturing companies. One comparison is after-tax return on sales. PACCAR led the group of 17 companies again last year. Other important measurements are earnings growth and return on capital.

Q. Can you comment on the future of vertical integration in the North American market?

A. First, let’s recognize that less than 50 percent of the Class 8 market in North America selects their powertrain, by which I mean primarily the engine. The Class 2-7 in North America and Class 2-8 for the rest of the world is exactly the same as the car industry: You purchase a vehicle, and the manufacturer specifies the powertrain. PACCAR has been a leader in offering the greatest number of powertrain options in the industry. We work with our customers and suppliers to deliver a configuration that we believe offers the highest efficiency and productivity.

Our experience as a manufacturer in Europe, where we build our own axles and engines, has shown us there could be some advantages of vertical integration. Those advantages can be improved fuel consumption, reduced noise and an increased transfer efficiency of power from the engine through the tires. Installing an optimized powertrain enables engineers and manufacturing personnel to reduce cost and to enhance customer service. The trend in North America might migrate eventually toward a vertical integration solution, whether that is each truck builder producing its own engine or collaborating with the independent engine companies to private-brand. PACCAR is committed to offering a range of excellent powertrain options for its customers.

Q. How do truck parts and financing fit into your strategy?

A. Truck financing has been offered by PACCAR since the 1960s to provide consistent and innovative financing solutions to truck purchasers. The downturn of the last few years has resulted in many finance companies exiting the truck market. Our dealers and customers recognize that PACCAR Financial is the best finance choice and will be in the market regardless of the economic cycle.

As a part of our financing offerings, PACCAR Leasing (PacLease) offers full-service maintenance leasing through 175 Kenworth and Peterbilt locations in the United States, Canada and Mexico. This provides another solution to trucking requirements throughout the market.

This year we introduced PACCAR Financial Europe to offer a range of industry-leading financial services throughout Western Europe for our DAF customers.

PACCAR Parts, our aftermarket parts operation, had sales last year of $1 billion and its eighth consecutive year of record profits. With the strong truck sales markets in recent years in both North America and Europe, there is increasing demand for parts.

To provide direct customer service to truckers on the road, we now offer the PACCAR Customer Call Center in North America. This program handles phone calls for customers in need and directs them to the most convenient source of servicing. This program is offered 24 hours a day, seven days a week, and is patterned off a similar program developed by DAF. PACCAR Customer Call Centers answer over 1 million calls annually to assist customers worldwide.

Q. Information technology is impacting the way carriers of all sizes do business. What initiatives is PACCAR taking to facilitate the use of IT among its customers?

A. PACCAR has been a leader in developing systems and applications that can readily be transferred into customer-enhanced products. These products are being designed to improve truck efficiency and safety, as well as to enhance communications. Examples of these enhancements include remote diagnostics of vehicles, real-time navigational updates and enhanced material logistics systems.

Q. The North American market has seen a lot of changes in the last year. What is PACCAR’s assessment of the truck market?

A. The North American truck market has always been dynamic, with plenty of opportunities for well-managed companies to prosper. During the 1990s there were some questionable practices such as guaranteed buy-backs or trade-backs, parent company subsidizing of finance companies, increased direct selling as well as more factory ownership of dealers. As a result, some manufacturers are suffering large financial losses as well as generating an increased number of dealership bankruptcies. The practice of financing marginal operators ultimately reduces the profitability of well-managed fleets due to lowering the barriers to entry and having those marginal operators push down prices throughout the industry. In addition, the overwhelming thrust for increased market share by competitors has severely damaged the resale value of their trucks as well as seriously eroded the financial stability of their dealer network. I think the pendulum will swing back to a more sane business model. It’s always an exciting marketplace and one in which PACCAR has achieved an enviable record of financial performance, superior products and outstanding customer support.

Q. Could you share something about yourself?

A. I’m very honored to be the fourth generation working at PACCAR. There’s a tremendous heritage of success that provides a great platform on which to build. The automotive industry is certainly a global one. I am fortunate to have gone to university for a time in Europe, worked in the United Kingdom for five years and in different PACCAR facilities around North America as well as traveling extensively worldwide.

Q. Besides your love of PACCAR, what else do you enjoy?

A. I have a great family and enjoy many types of sports including golf, tennis, fishing and cycling.

Q. Is there anything you would like to add?

A. As discussed, we are going through a challenging truck market in North America. These economic cycles are normal in our industry. PACCAR has emerged stronger from every cycle due to its emphasis on quality, innovation and clearly-defined financial standards. PACCAR has a very exciting future.