Buffeted by a slumping truck market and mounting losses tied to guaranteed residuals on trucks sold two to three years ago, Freightliner Corp. launched a plan in October that would “completely” restructure the company, according to Freightliner President and CEO Rainer Schmueckle. The four-pronged plan calls for Freightliner to shutter manufacturing plants, cut overhead costs, reduce truck platforms and dramatically revise its business plan.
“This plan is sweeping and is comprehensive,” Schmueckle said. “It addresses all of our business units: Freightliner Trucks, Sterling, Western Star, American LaFrance, Freightliner Custom Chassis, and Thomas Built Buses. It addresses all of our products: long-haul trucks, heavy-duty vocational trucks, midrange trucks, fire and emergency vehicles, chassis and school and transit buses.”
Schmueckle said the restructuring was ultimately “designed to secure future profitability even in challenging markets.”
The current heavy-truck market certainly qualifies as challenging. Freightliner predicts North American Class 8 truck sales will reach about 172,000 units this year, or down about 36 percent from last year. In 1999, during the boom times, the North American Class 8 market registered 309,000 trucks. “The market has roughly halved in just two years,” Schmueckle said, “with no immediate signs of recovery in the near future.”
The central part of the turnaround plan involves a major change in the way the company sells trucks.
Freightliner vaulted to a position of market leadership in recent years partly on the strength of sales to the major truckload fleets. Many of these deals were sweetened with guaranteed buybacks, which have come back to haunt the company, a subsidiary of DaimlerChrysler. “Our previous business model in our heavy-truck business left us vulnerable to downturns in the marketplace,” Schmueckle said. “Freightliner made residual guarantees on a large number of trucks. These residual guarantees turned out to be unrealistic and with a reduction in new and used truck demand as well as [reduced prices] in the used truck market led to a significant loss at Freightliner in the year 2001.”
While Freightliner would not comment on the magnitude of those losses, some industry observers have estimated losses as high as $500 million or more for the year. Faced with the mounting losses, the DaimlerChrysler board of directors shook up Freightliner management earlier this year when it removed James Hebe as president and CEO May 24.
