Truck sales in 2001 were dismal. Total Class 5 and 6 truck sales dropped 16.5% and 17.1%, respectively, from 2000 levels, according to Ward’s AutoInfoBank. Class 7 and Class 8 heavy truck sales took an even bigger hit, dropping 25.3% and 34%, respectively, from 2000 sales levels.
Horne, however, believes that International will come out of this downturn not only stronger but better able to resist future industry downturns. The reason for his confidence lies in the strategic plan he and the company have been crafting ever since he took over the top slot at International in 1991.
“We can’t keep doing the things the way we used to,” Horne explained at a recent meeting of International dealers. “As the market changes, we need to be in a position to succeed. To succeed in the truck market of the future, however, means we need to make major product upgrades every five years and bring out brand new products every 10 years. We are now in a position to do that.”
Horne said the key to winning not only market share but better profitability comes down to scale – that truck makers must be big enough, with the right mix of people and plant equipment, to support the investments necessary to stay on top in the market.
Horne added that International would need to grow larger in order to attain the right scale for success. In 2000, he said, the company built 125,000 trucks and 450,000 engines, and sold $1 billion worth of parts – adding up to $8.5 billion in revenues. To succeed in the future – and to better resist downturns – Horne believes International needs to be a $12 billion to $18 billion a year company, building 200,000 trucks, 1 million engines, and selling between $1.5 billion to $2 billion in parts.
Part of the reason behind the need to grow is the need to fund research and development efforts, said Horne. He said that in 1991, International spent $90 million on truck and engine R&D projects. By 2001, that R&D expenditure reached $253 million – despite the economic recession and drop in truck sales. “We have to invest, whether the economy is up or down,” Horne said. “That’s the only way we can survive.”
Another key point, added Horne, is the need to collaborate. That’s why International formed its Blue Diamond joint venture withMotor Co., he explained.
“Without scale, we can’t afford the engineering and plant investments we need to grow, survive, and thrive. In this market, it is collaborate or die,” he said. “That’s the reason for our alliance with Ford. Only through a joint venture can we develop the new products we need at profitable cost points for the both of us. In our best year, 1999, we built and sold 125,000 trucks. Ford, on the other hand, built and sold 7.4 million vehicles in that same year. That’s why we are in a joint venture with them – they have scale in certain areas that we lack.”
Steve Keate, president of International’s truck division, added that the company is also balancing short- and long-term issues in light of its need to build scale.
“Over the last five to six years, we’ve seen enormous change in the truck manufacturing industry,” he said. “What we are trying to do is move from an environment of just surviving to building a brand strategy that focuses on selling the value of our product.”
Keate said that in a truck market with 40% lower volume than last year’s, it could be tough to make that brand strategy commitment. “With our competition retrenching, this year provides us a window of opportunity that we must take advantage of now by being aggressive.”
Even further down the road, Horne believes that once International achieves the right scale – by becoming a $10 billion or more company – it will be in position to actually make money during economic downturns like this one.
“That’s why, in the current down market, it is no time for the timid,” Horne added. “Our vision has to become reality in order for us to succeed in the future.”