The Freightliner/Ford Heavy Truck Deal
October 6, 2000
Ford will exit the big truck market following the pending sale of its heavy truck business to Freightliner. If the deal is finalized and approved by the government, Freightliner will own technology, tooling and assembly equipment for the Louisville/AeroMax (HN80) trucks, the predecessor Ford L-Series and the Cargo medium duty low cab forward. The sale takes Ford out of heavy truck markets in Canada, Mexico and Australia as well as the U.S.
The acquisition adds a complementary mix of medium and heavy truck products to the Freightliner lineup, says President/CEO Jim Hebe. However the new - yet to be named - lineup of Class 8 trucks and the Cargo will stay with the current Ford dealer network. Sales, marketing and aftermarket support will be handled by Freightliner. Hebe, a former Kenworth dealer and executive, balks at parallels with Paccar’s Kenworth and Peterbilt divisions. He says Freightliner will combine resources for maximum utilization but will have two distinct distribution networks.
“The customer base has virtually no overlap,” notes Hebe. An analysis of last year’s production showed Freightliner heavy truck sales running 89% sleeper equipped while only 20% of the Ford heavies built were sleepers. Target markets are different. Freightliner’s linehaul trucks have helped propel it to the number one overall Class 8 market position, but the company hasn’t done well in vocational segments such as oil delivery, tankers, municipal vehicles and construction applications. Ford has been successful in these niches, creating what some call the market for the “Little Red Dump Truck.” A study of Ford customers some years ago reportedly placed it high on the list for vocational applications but low for over-the-road trucks.
The Freightliner/Ford lineup would see the new HN80 models - AeroMax and Louisville - in niche roles: the AeroMax as a cost-conscious day-cab tractor for heavy distribution fleets, the Louisville in vocational applications.
“I think the HN80, in the niches where it was designed to be targeted, is far and away the best product. Ford did a really excellent job of niching it,” Hebe says.There may be other HN80 products down the road. Ford was poised to launch several new vocational versions, including a short 101-inch BBC tractor and a 120-inch long-nose conventional. A medium duty truck is scheduled for introduction this year and Hebe confirmed it will form part of the new lineup. A 77-inch sleeper cab, the AeroLiner, was also in Ford’s development plans but will likely get the thumbs down from Freightliner.
The Cargo gets a second chance. Ford began importing the low cab forward from Brazil in the mid-1980s and has built them at its Kentucky Truck Plant since 1991. But low volumes - about 26,000 total - prompted Ford to begin phasing out the line last year. Low demand for medium duty cabovers also hurt the launch of Freightliner’s Business Class. But Hebe says the Cargo is a ready-made product to gain incremental sales and give Freightliner a fully rounded product offering.
Ford’s decision to get out of heavy trucks came after “a thorough strategic review” and the conclusion that they should concentrate on high-volume light and medium trucks, says Jim Donaldson, Truck Vehicle Center vp. Once that decision was made the deal was “a very short time in the making,” John Merrifield, heavy truck sales and marketing manager said. Ford, he says, initiated the contact.
The sale will allow some housecleaning at the Kentucky plant. According to Hebe, heavy truck production accounts for only 10% of total KTP volume, but requires 40% of the space. Removal of heavy truck manufacturing frees capacity for the F-250, F-350 and Super-Duty pickup trucks - plus a new medium duty truck and new light duty truck due out next year.
Freightliner’s not saying where it will build the new line; Hebe won’t rule out a new facility, but calls it a long shot. But, as one Ford insider noted, they’re a “very agile” producer. “Freightliner manufacturing is nimble at its ordinary way of doing things, not extraordinary like Ford’s,” he said. “We put out a pretty good product, but it takes us a long time.” Some speculate that Freightliner will be able to cut manufacturing costs of the former Ford trucks, making them even more price competitive.
Ford dealers are generally pleased. “Long term, it’s the best thing that could happen to us,” one told HDT. Ford’s parts and service support, some say, has been a weak link in the heavy truck program. Freightliner’s parts and service operation is considered to be strong. Hebe gets high marks and, after years of speculation regarding Ford’s commitment to the market, most said they are just pleased to “have a supplier that will be there and be aggressive.”
Both companies are close-mouthed regarding transaction details, but financial analysts speculate that Freightliner got a $200 million bargain, and Ford got out of the business while keeping faith with its dealers. Timing hasn’t been officially announced, but in a letter to employees Donaldson said they expect to have a definitive agreement in the next few weeks and to close the sale by year-end or early ‘98. One possible holdup: government approval. With Ford’s 9%, Freightliner will have almost 40% of Class 8 market.
It will take some time for personnel to be sorted out, but Merrifield says Ford people will all be accommodated within the company. “The asset sale involves products, drawings and service and parts business. No people involved,” he says. “Ford people don’t have to go to work for Freightliner. But Ford would not prohibit an employee from working for Freightliner.”