PACCAR Inc. History

Company Perspectives:

PACCAR maintains exceptionally high standards of quality for all its products: they are well-engineered, are highly customized for specific applications and sell in the premium segment of their markets, where they have a reputation for superior performance and pride of ownership.

Company History:

As the second largest medium and heavy truck manufacturer in the world, PACCAR Inc. sells Class 6, 7, and 8 trucks under the Kenworth, Peterbilt, Foden, Leyland, and DAF nameplates. As of the late 1990s, PACCAR also manufactured and sold industrial winches, operated finance and leasing subsidiaries, and sold automotive parts and accessories through its A1's Auto and Grand Auto retail outlets.

Company Origins

The history of PACCAR began with a steel foundry established in Bellevue, Washington (near Seattle) in 1904. At that time, the major industries in Seattle were forestry and shipping, neither of which had any use for primary steel products. Unable to find a market for the steel, the company's founder, William Pigott, decided to establish a second facility to manufacture finished steel products. In 1905 the company began production of "bunks," the steel clasps used to secure logs to railroad flat cars. Shortly afterwards, the company began to produce railroad cars, and took the name Pacific Car & Foundry Company.

Over the ensuing 20 years Pacific Car & Foundry developed a variety of special transportation equipment but remained primarily involved in railroad car production. Pacific Car was incorporated in April 1924, and was acquired four years later by the American Car & Foundry Company. In May 1931 Pacific Car acquired the Arrow Pump Company and plants belonging to the Bacon & Matheson Drop Forge Company.

Severe economic conditions during the Great Depression forced American Car & Foundry to close its Pacific Car plant at Renton, south of Seattle. William Pigott's son, Paul, repurchased the facility in 1934, and initiated production of refrigerated box cars. The box cars, or "reefers," were bought by railroads and agricultural combines to transport perishable goods to distant markets. Production of the company's refrigerator cars was highly profitable despite continuing poor economic conditions, generating enough surplus capital to permit the acquisition in 1936 of Heisers Incorporated, a manufacturer of motor buses.

During World War II Pacific Car produced railcars for the transportation of war materiel from production plants to major ports. The company also manufactured special vehicles and mechanical components. Following a reorganization in 1943, the company retired its common stock, and compensated stockholders with new preferred shares. The reorganization brought Pacific Car under close family control.

Expands into Truck Manufacturing in the 1940s and 1950s

In January 1945, as the war neared its end, Pacific Car & Foundry purchased the Kenworth Motor Truck Corporation, located in Seattle. Kenworth specialized in the production of powerful diesel trucks and achieved a reputation for quality.

Transportation needs in the western United States grew during the late 1940s and 1950s. Despite the growth of smaller communities in the West, it was uneconomical for railroad companies to construct new lines. This created a demand for large trucks capable of climbing steep mountain grades and crossing long stretches of flatland. Kenworth trucks were perfectly suited for this kind of work and, while expensive, they were also highly dependable and popular.

In 1953 Pacific Car & Foundry bought the Seattle facilities of the Commercial Ship Repair Company. Five years later the company purchased the assets of the Dart Truck Company, a Kansas City-based manufacturer of large "off-highway" construction equipment, such as earth movers and giant dump trucks; then in the following year, 1954, Pacific Car acquired the Peterbilt Motors Company, a truck manufacturer like Kenworth, located in Newark, near San Francisco.

When Paul Pigott died in 1961, Robert O'Brien was named to succeed him as president of the company. O'Brien placed greater emphasis on truck sales and structural steel production. As a result of these efforts, Pacific Car experienced an average 23 percent annual increase in earnings between 1961 and 1966. In 1965 Robert O'Brien was promoted to chairman of the board and was replaced as president by Charles Pigott, grandson of the founder.

Pacific Car purchased a Canadian producer of automotive transmissions and industrial winches called Gearmatic and in early 1967 completed its acquisition of Sicard Incorporated, a manufacturer of snow removal equipment and airport vehicles.

Workers at all three Pacific Car plants in Seattle staged a crippling labor strike from April 5 to July 22, 1968. This precipitated a 12-week strike at the Gearmatic Division in British Columbia and a three-week strike at the Dart facility in Kansas City. The strikes cost Pacific Car over $1 million in lost production but caused no lasting damage to the vehicle divisions.

Pacific Car & Foundry continued to produce railroad cars at its Renton Division. Although railroad car production contributed only a fraction to company earnings, it remained stable and profitable. Structural Steel, the weakest Pacific Car division, was one of the first U.S. steel manufacturers to suffer from the effects of outdated technology and a market restricted by imported steel. Although efforts were made to cut costs and increase productivity, Structural Steel continued to perform marginally.

In November 1971 Pacific Car & Foundry created a holding company, incorporated in Delaware, called PACCAR Incorporated. On February 1, 1972, PACCAR absorbed Pacific Car & Foundry. Company divisions such as Kenworth and Peterbilt retained their names, but other subsidiaries (particularly in finance) adopted the PACCAR name.

Unlike competing truck manufacturers, PACCAR was insulated from severe shifts in market demand by maintaining virtually no manufacturing facilities. Kenworth and Peterbilt trucks were merely assembled from parts produced by Eaton, Rockwell International, Cummins Engine, and Caterpillar Tractor, among others. This permitted PACCAR to avoid costly investments in manufacturing facilities and easily reduce production when demand fell. In addition, PACCAR had the freedom to purchase components from a variety of competing manufacturers, allowing it to custom build trucks to a customer's specifications and take full advantage of the newest products.

Challenges in the 1970s and 1980s

Inflation and high oil prices in 1974 led trucking companies to use their equipment more efficiently, which, in turn, caused a decline in new truck orders. Demand for higher quality Kenworth and Peterbilt trucks, however, was not seriously affected and production losses during 1974 were due more to the reoccurrence of strikes than to poor market conditions. Many labor disputes between 1974 and 1978 were caused by wage negotiations as labor contracts expired.

In November 1979 PACCAR failed in an attempt to gain control of the Harnischfeger Corporation, which produced cranes and earth-moving equipment. But 11 months later PACCAR successfully completed a takeover of Fodens Ltd., a British manufacturer of heavy-duty trucks. Fodens, which had been bankrupt since July, sold trucks in Britain, Europe, and Africa. The company's operations were taken over by a newly created PACCAR subsidiary, Sandbach Engineering.

A second oil crisis in 1979 and the subsequent implementation of deregulation in the trucking industry once again compelled operators to utilize their equipment more efficiently. This caused sales of Class 8 trucks (those over 33,000 pounds in gross vehicle weight, and the only type produced by Kenworth and Peterbilt) to fall 58 percent between 1979 and 1982. However, despite an overall 35 percent drop in sales, PACCAR remained profitable.

The Freightliner subsidiary of Daimler-Benz and the merged operations of Volvo White and General Motors became particularly aggressive in the mid-1980s, forcing PACCAR's share of the Class 8 truck market to drop from 23 percent in 1983 to 18 percent in 1986. Plagued by overcapacity, PACCAR was forced to close a Kenworth plant in Kansas City in April 1986 and a Peterbilt plant in Newark, California, the following October.

In an effort to reduce its dependence on the depressed Class 8 truck market, PACCAR announced its intention to purchase Trico Industries, a manufacturer of oil exploration equipment based in Gardena, California. After initial resistance, Trico agreed to be acquired in 1986 for $65 million.

During this time PACCAR also announced that it was negotiating with the Rover Group, the state-owned British automotive company, for the purchase of its British Leyland truck division. However, Rover management, with substantial support in the British parliament, elected to sell the truck division to DAF, a Dutch automotive concern.

PACCAR continued to experiment in new markets and in early 1987 concluded an agreement with Volkswagen do Brasil to import Class 7 trucks (26,001- to 33,000-pound gross vehicle weight) for sale in the United States. The Class 7 market, however, was overwhelmingly dominated by Navistar, General Motors, and Ford. PACCAR was also interested in acquiring the Bell Helicopter division of Textron, a unit it first attempted to purchase in 1985.

A recovery in demand for Class 8 trucks in early 1987 reinforced PACCAR's position that Kenworth and Peterbilt should not be merged. Truck production continued to provide PACCAR with about 90 percent of its operating income. Despite efforts at diversification, the company had yet to find a viable alternative to the cyclical demand and production of Class 8 trucks.

Later that year PACCAR moved into the automotive parts and accessories retail market with the purchase of A1's Auto Supply, a Washington-based wholesale distributor and aftermarket retailer. The company created a new subsidiary, PACCAR Automotive, Inc., to run the stores. In 1988 PACCAR bought Grand Auto, Inc., another auto parts and accessories retailer, and folded the new stores into the PACCAR Automotive subsidiary. Based in California, the new acquisition rounded out PACCAR's presence in the auto parts market in the western United States.

The 1990s: Maintaining Profits

The cyclical nature of truck sales again plagued the company in the early 1990s. As demand for trucks fell, so did PACCAR's sales. From a high of $3.5 billion in 1989, revenues fell to $2.8 billion in 1990 and then to $2.3 billion in 1991. The company managed to remain profitable, however, with net income falling from $242 million in 1989 to $40 million in 1991. The company avoided red ink in part by laying off 11 percent of its employees in 1990. PACCAR Automotive also cut back its operations in 1991 when it abandoned its wholesale auto parts sales to focus on its retail outlets.

PACCAR's finances improved slightly in 1992, when profits rose to $65 million. That year the company added to its oil field equipment manufacturing with the purchase of a 21 percent stake in Wood Group ESP.

The cycle rolled back upward in the mid-1990s, when aging fleets needed replacement and interest rates were relatively low. PACCAR enjoyed a series of record years, with revenues rising to $3.5 billion in 1993, $4.5 billion in 1994, and $4.8 billion in 1995. Profits rose commensurately, reaching $253 million in 1995. Robert Stovall, in a 1994 Financial World article, named PACCAR "the premier long-term investment in the heavy hauling business."

The prosperity encouraged expansion, and in 1993 PACCAR acquired a line of winches from heavy equipment manufacturer Caterpillar. The same year it brought a new plant in Washington on line to help meet the increased demand for trucks. In 1994 the company began selling in New Zealand for the first time and entered new countries in Asia and Central and South America. The company made its Mexican joint venture VILPAC, S.A., a wholly owned subsidiary in 1995.

In 1996 industrywide truck sales were down 25 percent from the year before. PACCAR responded by cutting back on production: It shut down truck manufacturing at a Seattle plant and closed a plant in Quebec that had been hurt by a strike the year before. The company's control over the heavy truck manufacturer VILPAC came in handy when PACCAR was able to move some of the Canadian production to the Mexican facilities.

PACCAR greatly expanded its presence in Europe in the late 1990s. In 1996 the company spent $543 million to acquire DAF Trucks N.V. Based in the Netherlands, DAF sold over 24,000 trucks in Europe in 1996 and employed around 5,000 people. In 1998 PACCAR bought Leyland Trucks Ltd., an acquisition it first pursued back in the mid-1980s. Founded in 1896, Leyland Trucks brought over 100 years of experience and 1997 sales of $272 million to PACCAR. The acquisitions were funded in part by the sale of Trico Industries, PACCAR's oil field equipment manufacturer, to EVI in 1997.

The acquisitions helped push PACCAR's revenues to $6.5 billion in 1997. Net income also increased, leaping 71 percent from the year before to approximately $345 million. Although truck sales were up, PACCAR's other businesses contributed to the company's prosperity. Earnings from retail automotive parts rose, and the company boasted 143 A1's Auto and Grand Auto stores by 1998. Financial and leasing subsidiaries also performed well in the late 1990s.

Principal Subsidiaries: DAF Trucks N.V.; Leyland Trucks Ltd.; PACCAR Automotive, Inc.; PACCAR of Canada, Ltd.; PACCAR Financial Corp.; PACCAR Financial Limited (U.K.); PACCAR Leasing Corporation; PACCAR Australia Pty. Ltd.; PACCAR Sales North America, Inc.; PACCAR Financial Pty. Ltd.; PACCAR Financial Services Ltd. (Canada); VILPAC, S.A. (Mexico).

Principal Divisions: Dynacraft; Kenworth Truck Company; PACCAR Parts; PACCARTechnical Center; PACCAR Winch Division; Peterbilt Motors Co.; PACCAR International.

Further Reading:

• Flint, Jerry, "In Good Times, Prepare for Bad," Forbes, July 1, 1996, p. 46.
• Grones, Alex, PACCAR: The Pursuit of Quality, Bellevue, Wash.: Documentary Book Publishers, 1981.
• PACCAR Reports Record 1997 Sales and Earnings," Business Wire, February 3, 1998.
• Stovall, Robert H., "Carrying the Goods of Recovery," Financial World, July 5, 1994, p. 78.

Source: International Directory of Company Histories, Vol. 26. St. James Press, 1999.

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