Operation

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  • Topic: Truck, Kenworth, DAF Trucks
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A CASE STUDY
IN
Production and Operations Management

“PACCAR TRUCK LEASING”

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I. Background

➢ PACCAR Inc. is a freight car and lumbering equipment manufacturer. Its primary business is building heavy-duty trucks (Class 8) diesel trucks under trade names of Peterbilt and Kenworh. ➢ PACCAR manufactures only the tractor part of a tractor-trailer rig which excludes the trailer part. ➢ PACCAR’s competitors not only manufacture Class 8 trucks but also make smaller trucks . These are: o International Harvester which makes different kinds of trucks, construction equipment and all sorts of agricultural equipment. Previously the largest producer but experienced severe financial crisis due to labor strike problem o Mack Trucks which is second to PACCAR, Inc. in terms of selling the Class 8 trucks. This company also makes middle-weight trucks and in controlled by foreign conglomerate ➢ Other companies which offer more standardized trucks other than the three (3) leaders namely : Ford, GM and Mercedes. ➢ Edge of PACCAR’s Class 8 trucks compared to others: o Built-in product quality and priced at a premium over competitors o Known as the “Cadillac” of the industry

o Strong distribution and service network around 250 dealers ( After sales service which offer full maintenance and repair service o It has a strong financial position, virtually no long term debt and its current ratio is 2.6 o One of the few companies in automobile and truck industry to have uninterrupted profits over the last 10 years.

II. Statement of the Problem

Should PACCAR enter into a full-service truck leasing business to boosts its dwindling income?

➢ Depression in the early 1980s showed steepest decline (56% of 1978 total) in car sales volume of the whole truck manufacturing industry including PACCAR. Due to this, net income of PACCAR fell sharply. ➢ One of the major reasons for the decline in truck sales is high interest rates which discourages purchase of all capital goods which include trucks. ➢ Instead of buying trucks by companies that want to transport their products, they resort to “full-service leasing”. ➢ According to senior marketing executive, PACCAR “should go into leasing for defensive reasons and to grasp an opportunity”. He added that if PACCAR don’t, as the leasing companies (competitors) become stronger, they will take over PACCAR’s relationships with the present customers.

III. Areas of consideration

The following areas of consideration which will be reviewed and analyzed in relation to the possible solution to the problem are:

A. PACCAR’s Financial Resources
Availability of financial resources had a great impact on different courses of action to be undertaken in order to face the problem that PACCAR is experiencing. This also includes the costs of raw materials sourcing and additional expenditures of the company for the realization of the action plan, its financial viability and PACCAR’s liquidity.

B. PACCAR’s Operation
Strategic planning is an important aspect of survivability of an organization. This will dictate PACCAR’s direction and operational targets. Different programs and objectives will be formulated leading to organization’s profitability.

C. Human resources (Availability and Capability)
Venturing to a new business will put PACCAR into a test of operational capability and readiness. Are the personnel technically capable, properly trained and is there enough supply of able manpower for the new leasing business?

D. Operating Cost
Cost of operation is the key profit indicator in any business....
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