At the end of this month Britain’s last remaining independent truck manufacturer, Lancashire-based Leyland Trucks, will pass into the foreign ownership of US giant Paccar, in a move that reflects the drive across the industry for consolidation.
The truck industry, much like the car industry as evident from last week’s Daimler-Chrysler mega-merger announcement is ripe for rationalisation. Both sectors are witnessing a growing web of cross-company marketing and development deals and joint ventures.
Last year, Sweden’s Volvo Truck entered a sales and development package with Mitsubishi for small trucks. And earlier this year it confirmed it was looking for more such opportunities either through similar agreements, joint-ventures or acquisitions.
Fellow Swedish group Scania is also said to be poised to add light trucks to its heavy portfolio, and the industry is awash with rumours of potential deals and take-overs.
Leyland Trucks is itself party to one of these inter-relationships. It manufactures sub-18 tonne trucks for sale in Europe exclusively by Netherlands-based company Daf Trucks. The latter makes its own range of heavier trucks for Europe.
Daf Trucks was itself acquired by Paccar in November 1996. It was because of this three-way relationship that talks about a possible take-over of Leyland emerged in the first place. Two months ago Paccar, Daf Trucks and Leyland Trucks got together to discuss the implications of a Daf/Renault joint venture under which Leyland will build a new range of trucks for Daf, which share many major components with Renault. According to a Leyland spokesman, it was these meetings which led to a few ‘what if’ scenarios one of which was Paccar buying Leyland.
Following completion of the acquisition which is subject to Government approval Paccar will own 100% of Leyland Trucks. It is part of an off-the-peg holding company, Kepacourt, which is owned by 15 company managers, including Leyland Trucks chairman John Gilchrist. All staked their fortunes in a management buy-out in 1993 along with Barclays Development Capital, which owns about 25%.
John Oliver, one of the original team and now managing director, is set to move to chief executive when Gilchrist retires on completion of the deal by early June.
The original MBO followed the collapse of Daf Trucks in 1993. With it went its UK subsidiary Leyland, including Leyland Trucks, the Albion Automotive components plant, LDV light vans, Leyland Technical Centre the technical and testing company and Mulitpart parts division.
The Dutch government took a 50% stake in a reformed Daf Trucks, while the Leyland businesses were involved in a series of management buy-outs. They have all thrived.
For the past five years Leyland Trucks has focused on building its 45 and 55 series 6-18 tonne vehicles which are marketed exclusively in Europe by the revived Daf Trucks.
It claims to have about a 10% share in the sub-18 tonne sector, and is pitched against the likes of Iveco, Mercedes, Isuzu and the new venture between Volvo and Mitsubishi.
Leyland Trucks has progressed steadily since 1993. Although no figures are available for last year, the business made profits of £10.4m on turnover of £170m in the year to 30 April 1997. Turnover in 1994 was £140m. It built 10,050 trucks in the financial year 1997-1998.
Although the Daf contribution accounts for about 75% of Leyland’s business, Leyland does have a number of other strings to its bow.
It also produces heavy-duty on- and off-road vehicles for the UK’s Ministry of Defence although orders have dried up, according to a spokesman, because of the defence ministry’s review of its spending plans. The truck maker completed its last two major contracts with the MoD in 1996.
Leyland Trucks has another four sources of revenue: direct sales of trucks in markets outside Europe; the assembly of the N Series of light trucks for the Japanese truck maker Isuzu; sales of truck parts to the Lex Service subsidiary, Multipart; and earnings from its consultancy business, Optima Personnel Services. The latter is a consultancy service for manufacturers, mainly blue-chip clients, which draws on Leyland’s experience of lean manufacturing. The majority of clients are not involved with vehicle engineering, and include, for example, Bolton-based bakery business Warburtons.
The Leyland factory, near Preston, Lancashire employs 770 people. It was originally commissioned in 1981. The assembly plant has a maximum capacity, on a two-shift basis, of 40,000 trucks a year.
The company has developed two vehicles in the past five years the 55, developed at a cost of £25m, and last month’s new launch, the Comet, which is designed for sale outside Europe.
Investment in future model development will be crucial for Leyland Trucks’ survival in an ever competitive market.
‘The acquisition by Paccar ensures continuity of the Leyland operation and enables us to maintain ongoing investment in employee training, plant and equipment, as well as new product development,’ commented Gilchrist.
And Paccar has ample funds into which to delve.
The Bellevue, Washington-based US trucks manufacturer has just recorded 1998 first quarter net profits up 73% from $57.9m (£35.5m) to $100.4m.
Sales also rose by 21% from $1.4bn to $1.7bn following buoyant demand in both the US and Europe, according to Mark Pigott, Paccar chief executive. He also predicts continued strength in global truck markets at least through to the end of the year.
The acquisition of Leyland Trucks fits in with Paccar’s aim to offer a complete range of truck products from six to 250 tonnes.
In addition to Daf Trucks, it also owns UK-based Foden Trucks, the heavy truck company which makes trucks at Sandbach, mainly for sale in the UK.
In the US it produces trucks under the Kenworth and Peterbilt brands. Other Paccar activities include financial services and the distribution of truck parts related to its principal business. In addition, it manufactures industrial winches and sells general automotive parts and accessories through its retail outlets.
For Leyland in addition to investment funds its new parent will clearly provide potential for cost savings in purchasing; Paccar has substantial spending power in the truck sector.
Leyland Trucks now spends about £100m with component suppliers, the majority of which are based in the UK. The engines are supplied by Cummins from Darlington, the cabs by Motor Panels of Coventry, the chassis frame comes from British Steel, and the vehicle electrics are sourced from various UK suppliers. The transmission comes from ZF of Germany.
With future product development seemingly secured and access to other manufacturers within the Paccar stable a strong possibility, the take-over should be good news for suppliers who are flexible enough to seize the opportunity.