The Penske Era
Roger Penske, the noted auto business investor, became interested after being approached by the struggling unit. In 1988, he added Detroit Diesel to his expanding portfolio by purchasing 60 percent of the outstanding stock. As part of the deal, GM retained 40 percent interest in the company.
Penske immediately changed Detroit's corporate goals, consolidating manufacturing operations while retaining key decision-makers. His goal was to cut Detroit's operating budget by at least $70 million.
Penske's first two years of ownership demonstrated that his new independent management had more than doubled the company's market share. In 1993, Penske management had improved Detroit Diesel's share by 26 percent and saw revenue increase by 60 percent. All was not rosy, however, as research costs reduced these profits to a paltry 1 percent. Further, the next two selling years were considered write-offs. 1992 was better, with income increasing by $20 million. Two major contributors added to the success of these Penske years: the company's Series 60 diesel engine and joint ventures.
The Series 60 Engine
Detroit's electronically controlled Series 60 diesel engine was introduced during the first quarter of 1987. What was unique about this mill was that it was the brand's first ever clean-sheet design. This meant Detroit had applied the latest technology in every aspect of the series' design, engineering, component production, manufacturing, and unit testing. Aside from the increased fuel economy, the new mills featured computerized engine control and monitoring features. In addition, longevity played an important part, with the new series recommending initial overhaul at 500,000 miles, with 500,000-mile rebuilds following. Upon the success and acceptance of the new engine, Detroit immediately extended the recommendation to 750,000-mile periods. The market responded to the new series, providing sales of $82 million by 1993.
Joint Ventures
Joint ventures seemed to be the latest corporate strategy for Detroit Diesel in the early '90s. The new business plan was to decrease competition for dwindling market share in the American homeland and increase foreign sales. Forging new agreements and understanding with foreign manufacturers, it was thought, would open global markets. The government, with its recent North American Free Trade Agreement (NAFTA) and General Agreement on Tariffs and Trade (GATT), would sweeten the development of long-term growth to offset traditional North American automotive business cycles.
To get the ball rolling, Detroit had previously entered into an agreement in 1988 with Perkins Engine in the UK for access to smaller diesel engines to broaden the company's lower-end choices in the 5-2,500hp range. Broader distribution of Detroit's own line was also planned. On Detroit's product side, it entered into an agreement with Mercedes-Benz in 1991 to jointly develop electronic fuel-delivery systems. A short 24 months later, both companies signed the Diesel Project Development funding agreement, which allowed MB to invest $20 million for an 11 percent stake in Detroit. The same year found agreements with Volvo's Penta engine division for select marine products sold within specific global markets. RABA PLC from Hungary then formed an alliance with Detroit to open the former eastern bloc countries to its diesel products.
Emissions: Round One
In the late '90s, the industry faced increased emissions standards. Though Detroit Diesel had scooped the competition with its high-tech Series 60 engine, the company faced tougher standards again in 1997. Detroit had hoped its increased research-and-development budgets would continue to give it an edge in both fuel efficiency and emissions controls. By this time, its fuel-research group had started utilizing alcohol, ethanol, methanol, and natural-gas engines. Despite all efforts including the increased income, the research, and the broader markets, Detroit Diesel continued to maintain an excessive debt load. The company countered by offering and completing a public offering of five million shares of common stock in the fall of 1993. Detroit's debt load was reduced by a cool $99 million as a result. However, the continued emissions issue combined with multiple joint ventures and increased research costs initially continued to position the company for an uncertain future.
In 2000, DaimlerChrysler AG purchased Detroit Diesel, merging it into its MTU Friedrichshafen and Mercedes-Benz Industrial engine businesses. The resulting Daimler-Chrysler Powersystems division brought together more than 34,000 employees and combined revenues of approximately $7 billion. Detroit Diesel now supplies its on-road engines to the company's Freightliner subsidiary on an exclusive basis.