tock may have a great deal to do with discouraging the average investor from becoming involved as a corporate shareholder. OPERATIONAL OBJECTIVESBecause of high fixed manufacturing costs inherent in the heavy truck manufacturing business, size is important. In general, the higher the production rate, the lower per-truck manufacturing costs. Lower per-truck manufacturing costs, as well as brand-name recognition, are big advantages in the highly competitive heavy-duty truck industry.With about 12 heavy-duty truck makers, there is currently an overcapacity within the production plants worldwide. As a result, prices for new trucks have fallen as competition for new customers has increased. The industry is consolidating, with the latest merger rumors involving Volvo’s tentative agreement to buy Renault’s Mack truck division. If the deal were consummated, Volvo would become the second-largest heavy-duty truck maker, bumping Paccar from third to fourth place.Paccar operates in a very cyclical industry. Manufacturing overcapacity, used-truck pricing, fluctuating international economies, fuel prices, currency devaluations, volatile interest rates, and other factors greatly influence sales and earnings. Even now, the industry is undergoing one such cycle. Despite a still booming economy, higher fuel costs and interest rates have caused demand for new heavy-duty trucks to fall by half from last July, to 10,000 a month. To ameliorate and smooth the effects of these inherent cycles, Paccar has embarked on a fourfold plan: (1) outsourcing, (2) maintaining low fixed costs, (3) globalization, and (4) diversification.OutsourcingOne key objective for Paccar is focusing on truck design and assembly, leaving production of major components to outside suppliers. Paccar stays lean by purchasing 75% of every Peterbilt and Kenworth truck from outside vendors. This serves the company well when typically volatile demand for heavy trucks t...
