Mid-Range Blues

Posted on June 28, 2006

The recent announcement that Paccar and Cummins have linked up on an exclusive mid-range truck diesel engine deal can legitimately be classified as one of those Industry Changing Announcements.

Specifically, it means Caterpillar is pretty much out of the mid-range North American truck diesel engine business. With Freightliner and Paccar mid-range now with Cummins, Ford getting its mid-range diesels from its alliance with International, and GM through Isuzu, there’s no place for Cat. Many are speculating that given Cat's insistence on getting its price for ACERT, that this is one of the end results.

Not surprisingly, Caterpillar has been very quiet in the first days after the announcement. Culturally it has to be a blow to the Peoria, Ill. giant, a rare “defeat” in what has been a real strong corporate winning streak. This one’s gotta hurt.

In numbers it probably means the loss of 30,000 to 35,000 diesels. The surprising aspect though is that it’s only between 10% and 15% of Cat’s total mid-range diesel production. And, with the margins in the truck market, it probably represents less than that on the profit and loss statement.

The majority of those mid-range engines now end up in Cat-branded off-highway equipment which is booming, more are going to other OEMs, as well as Cat’s own electric power generation products, along with marine. It’s a blow, but it’s not a death blow.

In over 25 years of calling on Cat, it has been interesting, fascinating and intriguing to watch the cultural change within Engine Division, as many still call it. For a lot of those years, the truck engine folks ruled the roost; when truck spoke, the engine division listened.

Along the way, Cat got into the compact equipment business, the outside engine sales operation expanded, and power generation grew into today’s strong, vibrant and profitable group. With all those cylinders firing, the engine operations grew into it’s current $11 billion colossus. The truck engine folks still had a lot of clout, but now they weren’t the only group sending money downtown.

On the other hand, many of today’s “seniors,” now in key roles with Cat Engine and Caterpillar Inc. came through the truck group at some point of their careers and never lost that allegiance. Thus, it’s gotta hurt.