Vertical Integration: Friend or Foe?
March 2010, TruckingInfo.com - Feature
There is a creeping vertical integration in North American truck manufacturing.
As truck manufacturing gets increasingly global and the costs for new components spiral, chassis like this Freightliner being assembled in Saltillo, Mexico, carry an increasing number of in-house components. (Photo by STF)
The model is changing from assembly of a wide diversity of components to a more structured and integrated whole, where more of the components are captive to the manufacturer. That means options for the customer are becoming more and more limited.
It is still worlds away from the European model. Over there, the truck customer explains his or her needs to the dealer or fleet sales engineer and the horsepower is determined. From that point, the specifications are virtually locked in. Options may include the color and trim -- and maybe the decision whether it will have a manual or an automated transmission.
Even though we are nowhere near that point, integration is happening here in response to market conditions, changing regulations, escalating fuel prices, and cost. Truck makers can no longer afford the complexity of four engine options, several transmissions, with different drive axle and brake suppliers, neither from a development cost perspective nor from a regulatory standpoint. A host of external influences have the end result of limiting truck specifiers' options.
The end result also tends to limit the repair options, as more of the truck becomes captive to the original manufacturer. Fleets struggle with a lack of software to support diagnostics and repair. Even when brand-specific tools and software are available, they chafe under the cost of the licenses needed for all the technicians and the different shops.Emissions regs driving change
The exit of Caterpillar from over-the-road engine markets in North America this year is a prime example of changes limiting choices. That decision can be traced back to the changes at the truck makers in response to emissions regulations.
Tim Schick, marketing director for the International big-bore engines, explained during the launch of the new engine range: "We could see how we could get low pricing from a high-volume supplier, but not how to get low price from low volume." He said International could see the independent engine manufacturers being squeezed with 2010 emissions. International, the company decided, would need its own big-bore engine to remain competitive in the heavy-duty marketplace. Hence the MaxxForce 11- and 13-liter engines based on the German MAN diesels.
In a more recent move, International has speeded up development of the MaxxForce 15, which ironically will be based on the Caterpillar C15 iron but use enough air and fuel handling components developed by International's engineers that the 15-liter will be effectively another International captive engine.
International's decision to go ahead and develop its own MaxxForce 11- and 13-liter engines hastened Caterpillar's withdrawal from on-highway. The potential to recover the enormous costs of developing on-highway engines for a shrinking market simply couldn't be justified by the equipment manufacturer, despite the service benefits to Cat dealers and distributors that the on-highway engines business brings.
Elsewhere, the two Paccar brands, Peterbilt and Kenworth, have announced North American versions of the engine that powers Paccar's DAF trucks in Europe and elsewhere around the world - the 12.9-liter MX. This engine is to be manufactured in Louisiana and will be the base engine in both American nameplates from mid-2010 -- further rowing out Caterpillar in brands where the company was best represented.Globalization
It's not only Paccar that's taking the opportunity to leverage worldwide engine platforms in North American truck models with the 2010 emissions changes.
At the Daimler Trucks North American brands Freightliner and Western Star, the phase-in of the Daimler Heavy Duty Engine Platform, first at 14.8 liters and now at 12.8 and 15.6 liters, has been an absolute priority. Also coming from Daimler is a 10.6-liter that may power Freightliner and Western Star brands here, but will be used in Mercedes-Benz and Fuso trucks elsewhere. Years ago, then-president of Freightliner LLC, Rainer Schmueckle, said that without at least 100,000 engines a year, a truck OEM simply cannot support the development costs associated with on-highway emissions regulations worldwide.
For Daimler, by adding North American Freightliner, worldwide Mercedes-Benz and far eastern Fuso brands, the number reaches this threshold. That makes it possible to amortize the $2 billion investment it took to design and develop engines to meet North American, European and Japanese emissions regulations through 2013.
That same need propelled AB Volvo in Sweden to develop its new platform 11-, 13- and 16-liter engines for the NAFTA, Europe and Asia markets to power Mack, Volvo and Renault trucks. There would be no surprises if these same engines appeared in the UD/Nissan Diesel trucks in Asia as well.
The exit of Caterpillar on-highway from 2010 on spells good news for Cummins, of course. However, North America becomes less important to the engine maker as Cummins pursues business in China, India and the fast expanding - though currently stalled - economy of Russia and the former Russian satellites.Fewer component options, too
For American truckers, this all means that trucks will increasingly feature captive engines, with Cummins as the only option. In the case of Volvo brands Volvo and Mack, and Daimler brands Freightliner and Western Star, increasing use of captive drivetrain components will mean fewer options there, as well. The iShift transmission backing up a Volvo engine in a VN represents quite a chunk of opportunity for Volvo, as the Mercedes-Benz drive axles in Freightliners do for Daimler.
Add to this scenario the virtual integration that goes hand-in-hand with new product development these days, and even brands like Kenworth and Peterbilt start to look more integrated and less like the custom component assemblers they used to be.
The new dashboards are a case in point. Developed to be much more attractive and driver-friendly, the electrical architecture behind the Kenworth and Peterbilt dashes owes much to European partner DAF. Sharing the technology makes for a robust and feature-rich product, but you can't go down to the local parts store to buy a Stewart Warner gauge if there's a problem.
Trucks - and especially their emissions-certified powertrains -- are becoming increasingly complex and require a level of component integration that has to be in place as a new model is conceived. Stability control is a case in point: Braking systems must communicate with engine controls and even steering systems; engine brakes now talk to automated transmissions and engine fans; and collision warning brings braking override through the ABS. Here, integrated systems have significant safety - and customer - benefits that are only fully realized when the components are baked in at the design stage. Not for nothing is there an ongoing trend for OEMs to line up with preferred suppliers in the development and introduction of new products.Aftermarket alert
This trend is already impacting the independent aftermarket and the fleet repair shop. Where repair shops once could take on the relatively simple task of repairing a diesel engine or chasing down an electrical problem, these tasks have become more and more difficult with the increasing complexity of the powertrains, the electrical systems and the various controllers throughout the truck. Repairs increasingly require sophisticated diagnostic equipment, tools and, most importantly, repair instructions from the vehicle manufacturers.
The truck manufacturers are not coy about expressing the desire to keep the customer captive to the franchised dealers. Volvo's Joy Johnson, director of parts sales and marketing, says the value intrinsic to the brand is made up of the original vehicle as it was designed and specified. Anything less than a re