DaimlerChrysler Spurns Truck Biz

December 5, 2001

Sacramento - One year ago several European automakers were making acquisitions and aggressively positioning themselves toward controlling a larger share of the European commercial truck business. Renault, Volvo, Volkswagen and DaimlerChrysler were all buying up truck assets like there was no tomorrow, each interested in carving out a niche in Europe's truck market.

Recently Volvo decided to place its stake in truckmaker Scania up for sale and the company thought there would be a race between VW and MAN for the shares. Neither company even blinked. Instead, MAN went off and made a deal with a Chinese bus company and VW stated that its shares in Scania were up for sale as well, if anyone wanted them. No one did.

Now DaimlerChrysler, the company that showed Europeans how to develop a commercial truck business, says it is reversing its strategic priorities for its truck business. The company's management board member responsible for commercial vehicles, Eckhard Cordes, told German newspaper Handelsblatt yesterday that the group now plans to put profitability above market share. That will mean, he offered, producing fewer trucks and increasing prices.

Cordes looked specifically to his U.S. truck subsidiary Freightliner. "The goal is profitability. Market share is only a secondary consideration," said Cordes. Freightliner has been building market share in the U.S. over the last several years. Most of the growth has come through acquisitions, although DCX did come up with attractive incentives for fleet managers. Today, Freightliner has an estimated 30% share of the commercial truck market, but Cordes says it's not profitable. And with the economic downturn, sales of trucks in general are flat.

In the car business, we think zero percent financing is a nice incentive. Listen to what DCX has been doing to sell trucks. According to Cordes, in order to move trucks with fleet operators, Daimler offered them buy-back contracts that guaranteed Daimler would buy back used trucks at a fixed price. As the recession deepened, truck traffic slowed, demand waned and prices for used trucks fell, by as much as 30% according to Cordes. But Daimler had agreed on a fixed price and it was buying back used trucks for far more than they were worth.

Cordes says buy-back programs are gone and Daimler is in the process of trying to re-negotiate some of the contracts it still has out there. He expects demand for trucks to continue declining next year. "In North America," he says, "the situation will stabilize at a low level." But he fears the European truck market will shrink at a stronger rate in 2002 than previously expected, possibly greater than 15%. Cordes hopes that for 2002 Freightliner will breakeven after posting a loss of about $1 billion this year. So, that's what happened to the commercial truck market. Anybody want to buy some truck stock?