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February 2011 Baselines: PACCAR

How Peterbilt and Kenworth Trace Their Heritage Back to Trains

Text By Bill Senefsky, Photography by Courtesy Of Paccar,

Today's Paccar can trace its roots back to the small town of Bellevue, Washington, where William Pigott's small steel foundry produced steel clasps for the attachment of logs onto railroad cars. Soon after his entrance into the specialized railroad business, William merged his Seattle Car Mfg. Co with Twohy Brothers of Portland. This new venture was known as the Pacific Car and Foundry Company. For two decades, it turned out a variety of railcar products, in addition to the massive railcars themselves. Full incorporation of the company was completed in 1924, and four years later American Car & Foundry purchased Pacific Car.

Born From Trains
In 1931, Pacific Car purchased the assets of the Arrow Pump Company along with certain parts of the Bacon & Matheson Drop Forge Company. Like other manufacturing businesses of the period, The Great Depression hit this company hard and forced American Car to close its Pacific Car facilities. Paul Pigott, son of William Pigott, purchased the Pacific Car assets and made a success from failure with the production of refrigerated boxcars in 1934.

Both the agriculture industry and the railroads saw immediate profits with Pacific Car's refrigerators, which offered the ability to transport perishable foods by rail for the first time. Continued profits from the sale of these specialized railcars led to the purchase of Heisers Incorporated, which was a local producer of motorized vehicles in 1936.

Arsenal Of Democracy
During World War II, the company built on its existing railcar business through wartime transportation of goods and services. It also added a variety of mechanical components and specialized rolling platforms to its offerings. In 1943, the founders bought out the company's common stock and issued preferred shares. This brought the organization back under family control.

Entered Into The Trucking Industry
After war's end in 1945, the company purchased the assets of Kenworth Motor Truck Corporation. This was a critical purchase for Pacific Car. It turns out that while studying the rail transportation market, Pacific Car discovered that in spite of the rapid growth of smaller cities and communities in the West, established railroad lines were not going to invest in additional rails and routes. This meant the motor transport market could fill the void by producing a larger class of trucks that would be powerful enough to handle the mountain grades and long, winding highways.

Peterbilt
Kenworth trucks already had a strong reputation for quality, ruggedness, and superior longevity. In the '50s, Kenworths were expensive, powerful, and very popular. In 1953, Pacific Car purchased the assets of the Commercial Ship Repair Company of Seattle. Within five years, the company moved to purchase the Dart Truck Company of Kansas City. But it wasn't until 1954 that Pacific Car purchased its most renowned brand-Peterbilt. At the time, Peterbilt was located near San Francisco, in Newark, California. With these two prominent truck brands, Pacific Car experienced a 23-percent annual earnings increase during the early '60s.

Acquisitions Continue
Gearmatic, a Canadian producer of automatic transmissions and heavy-duty winches, was added to Pacific Car in the late '70s. Sicard, a producer of airport vehicles and heavy-duty snow removal equipment, was also added to the fold. Pacific Car's railcar division continued to be profitable, though it contributed a mere fraction of its earlier profits.

The company's steel division, known as Structural Steel, suffered from the introduction of low-cost imported steel during this period. Outdated production methods and market restrictions also contributed to its small profit margins.

In 1971, Pacific Car decided to create a new holding company-dubbed Paccar-which was incorporated in Delaware. Thus Paccar absorbed all the Pacific Car & Foundry operations. The company's new branding was applied to all its subsidiaries, except Kenworth and Peterbilt-which retained their popular identities.

Two Decades Of Challenge
Higher oil prices, an oil embargo, and inflation affected Paccar's retail sales during this period. Yet labor disputes, due to contract expirations in 1974 and 1978, seemed to have the greatest impact on the company. At the same time, America's trucking operators had begun to analyze and run their operations more cost effectively. These efficiency studies caused a slight decline in new truck orders.

Paccar began another acquisition program in 1979, with an unsuccessful bid for the takeover of Harnischfeger, a manufacturer of earthmoving equipment and cranes. Though this bid failed, the company was successful in its purchase of British-owned Fodens Ltd., a heavy-duty truck producer and supplier in Britain, Europe, and Africa. This move allowed Paccar access to other continents, where its traditional brands were marketed under a subsidiary called Sandbach Engineering.

The second oil crisis of 1979 reduced company sales, and production output was cut by 38 percent. The total sales in the Class 8 market dropped by an even larger 58 percent. However, Paccar managed to come out of this four-year downturn period with some profitability.

The mid-'80s witnessed big changes in the North American trucking industry. Daimler-Benz purchased the Freightliner brand, Volvo purchased White-GMC, and Mack was sold to Renault.

Paccar sales dropped five percentage points in 1986, and as a result of overcapacity, the company shuttered its Kenworth plant in Kansas City and its Peterbilt facility in Newark, California.

As in the past, company management began to look at diversification as a way to protect its profits from market cycles. Thus, the company purchased Trico Industries, an oil exploration equipment manufacturer, for $65 million. In addition, Paccar began talks with Rover Group's British-Leyland, with regard to the purchase of its heavy truck division. The British government balked and allowed the sale to Europe's DAF truck manufacturer instead.

Sales Abroad
Continuing to further explore and open up new markets, Paccar signed an agreement with Volkswagen of Brazil to import Class 7 trucks. However, Ford, General Motors, and Navistar dominated this market. Talks were also held with Textron concerning the purchase of Bell Helicopters.

Class 8 sales recovered in 1987 and continued to provide Paccar with roughly 90 percent of its income. The cycle effect of this industry continued to bother management a bit, so in this same year, the company surprised observers with its entrance into the retail automotive parts business. Both A1's Auto Supply, and Grand Auto were folded into Paccar's new Automotive Supply subsidiary in 1987 and 1988. This new operation was based in California.

Profits Roller Coaster
Paccar's cyclical profit structure appeared again in the early '90s. Truck sales fell from $3.5 billion in 1989 to $2.3 billion in 1991. Shockingly, the company remained afloat, despite net income losses of $242 million in 1989. As expected, employee layoffs resulted. The company also ceased its wholesale automotive parts operation but surprisingly purchased a 21 percent interest in another oil field equipment manufacturer called Wood ESP.

By the mid-'90s, many trucking fleets finally began to replace some of their aging equipment. As a result, Paccar's profits again began to slowly rise. More than $3.5 billion in revenue was recorded for 1993. That grew to $4.8 billion in 1995, with profits of $253 million recorded that same year.

Paccar added yet another line of winches purchased from Caterpillar in 1993. A year later, the company began operations in New Zealand, with a new presence in the Asia and South American markets. An earlier partnership with Mexico's VILPAC S.A. became another wholly owned subsidiary in 1995. Some Canadian operations were later transferred here, due to labor issues.

By the beginning of 2000, Paccar expanded its European presence again with the purchase of Dutch-owned DAF. This company had average sales of 24,000 units in Europe in 1996. Always persistent, Paccar finally acquired Leyland Trucks, Ltd., the firm it had pursued in the '80s. It contributed $272 million in sales to the bottom line in 1997. Paccar sold its Trico Industries oil field operations the same year.

Today, Paccar remains an American icon in the heavy-duty trucking industry thanks to its popular Kenworth and Peterbilt brands. The key to its success, however, must be traced to the fact that it continues to offer customized, assembled trucks. In other words, Kenworth and Peterbilt platforms are assembled with components purchased from its main suppliers: Cummins, Caterpillar, Eaton, and Rockwell. Paccar has traditionally avoided the costly investments in subassembly and parts production. Since it remains a custom truck producer, it has the ability to pick and choose its component sources, including the latest offerings from a variety of concerns.

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By Bill Senefsky
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