Detroit Diesel Reports Third Quarter 1997 Results

27 October 1997

    DETROIT, Oct. 27 -- Detroit Diesel Corporation announced
today third quarter 1997 revenues increased 7% to $524 million and net income
increased 15% to $8.2 million or $0.33 per common share.  These figures
compare with third quarter 1996 revenues of $488 million and net income of
$7.1 million or $0.29 per common share.
    Total third quarter 1997 shipments were 37,800, an increase of 3% compared
with third quarter 1996.  Sustained strength in heavy-duty truck and
automotive segments resulted in the unit growth.  Total shipments year-to-date
increased 8% to 123,100 units, compared with 114,300 units in 1996.
    Roger S. Penske, Chairman, said "The third quarter results reflect our
continued emphasis on new product introduction, coupled with a consistent
strength in the automotive and on-highway truck segments.  I expect the roll-
out of new product programs and a stable economy, combined with our cost
reduction initiatives, will yield improvements in our future results."
    The Company's service parts revenues for the first nine months were 5%
higher than the previous year.  Revenues from both two-cycle and four-cycle
service parts have continued to show increases versus the prior year.  The
Company's remanufacturing revenues grew 10% to $32 million compared with the
third quarter 1996.
    Gross margin was 22.4% in the third quarter, compared with 23.0% in the
third quarter 1996.  As anticipated, the gross margin in the third quarter was
affected by the initial shipment of new products, particularly Series 2000 and
Series 4000 engines.  Year-to-date gross margin was 22.8%, consistent with the
full-year 1996 gross margin.
    Research and development expenses were $22.2 million for the quarter,
compared with $26.6 million in third quarter 1996, despite the continued
significant investment in new product development initiatives.  Selling,
general, and administrative expenses were $78.4 million for the quarter
compared with $72.5 million in 1996, due to expenses associated with increased
unit volumes and the introduction of new products.
    The quarterly results include $2.2 million received by the Company from
Outboard Marine Corporation in connection with the proposed acquisition, net
of expenses incurred in conjunction with the acquisition effort.  The amount
is included in the revenue reported for the period.
    Following is a review of the Company's market segments:

    On-Highway Truck.  Revenues increased 32% to $249 million in the third
quarter compared with 1996, resulting from the increased demand in the heavy-
duty truck market.  Shipments to all portions of the market have experienced
solid gains over the previous year's levels.  Series 60 engine production
rates were raised during the period to accommodate increased demand.  Year-to-
date 1997 revenues increased 24% to $711 million compared with 1996.
    Construction and Industrial.  Revenues were $78 million in the third
quarter, compared with $86 million in 1996, due to the discontinuance of
distribution of Perkins products at the end of 1996.  Year-to-date revenues
were $241 million versus $265 million in 1996.  On a comparable basis, third
quarter revenues increased 5% compared with the third quarter 1996 and year-
to-date revenues increased 3%.  Initial shipments of the Series 4000 engines
for mine haul truck applications coupled with higher Series 50 and Series 60
engine deliveries contributed to the increase.
    Automotive.  Revenues were $47 million in the third quarter, compared with
$50 million in 1996, and were impacted by differences in exchange rates
between the periods. Year-to-date 1997 revenues were $188 million, an increase
of 20% compared to 1996.
    Coach and Bus.  Revenues increased 7% to $58 million in the third quarter
compared with 1996.  The quarter showed a significant increase in Series 60
engine shipments for the on-highway coach segment.  The Company maintained its
strong market share in the transit bus segment.  Year-to-date 1997 revenues
were $178 million, a 13% increase compared to 1996.
    Marine.  Revenues were $34 million in the third quarter, compared with $38
million in the third quarter 1996.  Year-to-date 1997 revenues were $105
million versus $120 million in 1996.  As anticipated, slow production ramp-up
of the Series 2000 marine engine impacted the quarter and year-to-date
results.  Strong interest in the new Series 2000, Series 4000, and Series 60
marine engines exists for the remainder of the year and into 1998.
    Power Generation.  Revenues were $33 million in the third quarter,
comparable to the third quarter 1996.  Year-to-date 1997 revenues were $106
million, an 8% increase compared to $98 million in 1996.  The Company has seen
some recovery in the Far East region, although additional near-term growth may
be limited by economic conditions within the region.  SPECTRUM(R)-branded
orders placed for U.S. deliveries have shown consistent growth over the last
several quarters.
    Military.  Revenues were $25 million in the third quarter, compared with
$37 million in the third quarter 1996.  Year-to-date revenues were $72 million
versus $87 million in the prior year due to reduced defense spending.  This
reduction has been partially mitigated by the increased shipments of
remanufactured products and international opportunities.
    Detroit Diesel Corporation is engaged in the design, manufacture, sale and
service of heavy-duty diesel and alternative fuel engines, automotive diesel
engines, and engine related products; and provides financing through Detroit
Diesel Capital Corporation.  The Company offers a complete line of diesel
engines from ten to 10,000 horsepower for the on-highway truck; construction,
mining and industrial; automotive; coach and bus; marine; power generation;
and military markets. Detroit Diesel services these markets directly and
through a worldwide network of more than 2,500 authorized distributors and
dealers.  DDC is a QS-9000 certified company.
    Detroit Diesel's major shareholder is Penske Corporation, a closely-held,
diversified transportation services company whose operations include Penske
Truck Leasing Company, Diesel Technology Company, Penske Automotive Group,
Inc., Penske Auto Centers, Inc. Penske Motorsports, Inc., and Penske Capital
Partners.  The Penske Group of businesses has annual revenues exceeding $6
billion and employs more than 28,000 people around the world.
    This news release may include projections, forecasts and other forward-
looking statements about the Company, the industry in which it competes and
the markets it serves.  The achievement of such projections is subject to
certain risks and uncertainties, fully detailed in the "Cautionary Statement
for purposes of 'Safe Harbor' under the Private Securities Act of 1995" in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996,
which is on file with the Securities and Exchange Commission.
    Detroit Diesel's World Wide Web address is http://www.detroitdiesel.com.

                            Detroit Diesel Corporation
                      Consolidated Statements of Operations
                     (In millions, except per share amounts)
                                   (Unaudited)


                                 Three Months Ended   Nine Months Ended
                                   September 30,        September 30,
                                  1997     1996       1997      1996
    Net revenues               $ 524.1   $ 487.6   $1,601.2 $1,457.7
    Cost of sales                406.9     375.3    1,235.8  1,120.5
    Gross profit                 117.2     112.3      365.4    337.2

    Expenses:
    Selling and administrative    78.4      72.5      248.0    213.6
    Research and development      22.2      26.6       71.5     78.1
    Interest                       3.1       3.7        9.7      9.1
    Special charge*                -         -          -       38.3
    Total                        103.7     102.8      329.2    339.1

    Income (loss) before income taxes
     and minority interests       13.5       9.5       36.2     (1.9)

    Provision (credit) for income
     taxes                         5.2       2.3       14.1     (1.7)

    Minority interests              .1        .1         .1       .6

    Net income (loss)          $   8.2   $   7.1    $  22.0   $   (.8)

    Primary net income (loss)
     per share                   $    .33  $    .29   $    .89   $   (.03)

    * Consists of product coverage and reduction in the value of an investment
    in Mexico of $24.9 million after tax or $1.01 per share.



                               Sales Data by Market
                                  (In millions)

                                Three Months Ended    Nine Months Ended
                                  September 30,         September 30,
                                1997      1996       1997       1996


    On-Highway Truck           $ 249     $ 189     $  711     $  573
    Construction & Industrial     78        86        241        265
    Automotive                    47        50        188        157
    Coach & Bus                   58        54        178        158
    Power Generation              33        34        106         98
    Marine                        34        38        105        120
    Military                      25        37         72         87
      Total                    $ 524     $ 488     $1,601     $1,458


                          Detroit Diesel Corporation
                         Consolidated Balance Sheets
                   (In millions, except per share amounts)

                                             Sept. 30,       Dec. 31,
                                               1997            1996
                                            (Unaudited)

    ASSETS
    CURRENT ASSETS:
    Cash and cash equivalents               $    6.9        $    3.0
    Receivables, net of allowances             316.9           293.1
    Inventories                                301.5           292.1
    Prepaid expenses, deferred charges
     and other current assets                   12.9            19.8
    Deferred tax assets                         54.2            56.4
    TOTAL CURRENT ASSETS                       692.4           664.4
    PROPERTY, PLANT AND EQUIPMENT
    Net of accumulated depreciation
    of $146.0 and $125.3, respectively         300.8           281.5
    DEFERRED TAX ASSETS                         25.2            26.0
    INTANGIBLE ASSETS, net                      88.4           103.9
    OTHER ASSETS                                36.8            36.8
    TOTAL ASSETS                            $1,143.6        $1,112.6

    LIABILITIES AND STOCKHOLDERS' EQUITY
    CURRENT LIABILITIES:
    Notes payable                           $   45.0        $   16.6
    Accounts payable                           299.4           279.9
    Accrued expenses                           178.0           179.8
    Current portion of long-term debt
     and capital leases                          6.3             9.8

    TOTAL CURRENT LIABILITIES                  528.7           486.1
    LONG-TERM DEBT AND CAPITAL LEASES           75.0            92.6
    OTHER LIABILITIES                          166.3           165.2
    DEFERRED TAX LIABILITIES                    27.6            35.4
    DEFERRED INCOME                              6.1             6.5
    MINORITY INTERESTS                            .6             5.6

    STOCKHOLDERS' EQUITY:
    Preferred stock, par value $0.01 per share,
     no shares issued                              -               -
    Common stock, par value $0.01 per share,
     24.7 million shares issued                   .2              .2
    Additional paid-in capital                 217.8           217.8
    Retained earnings                          130.9           108.9
    Additional minimum pension adjustment       (2.5)           (2.5)
    Currency translation adjustment             (7.1)           (3.0)
    Deferred compensation on restricted stock      -             (.2)
    TOTAL STOCKHOLDERS' EQUITY                 339.3           321.2
    TOTAL LIABILITIES AND STOCKHOLDERS'
         EQUITY                                 $1,143.6        $1,112.6

SOURCE  Detroit Diesel Corporation